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There is, Perhaps, a Grimmer Truth

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4 Responses

  1. Mark Edwards says:

    “Who wants to refinance a home loan that is already underwater?”

    One problem with living in a country that continually re-invents itself is that we sometimes forget even our recent history. We’ve answered this very question in the not-too-distant past. As I recently wrote about here, the Roosevelt Administration created the public/private hybrid Home Owners’ Loan Corporation (financed partly publicly, and partly through tax-favored private investment).

    “This institution had a simple but crucial mission: buy delinquent mortgages from home lending institutions, then work with home owners to refinance them on less risky and more responsible terms. As a result, banks were able to sell mortgages they most wanted to be rid of, reducing their bad debt and increasing their liquidity. For homeowners, short-term, adjustable rate, and balloon mortgages were converted to long-term, fixed rate mortgages.”

    http://www.concurringopinions.com/archives/2008/11/henry_paulsen_a_1.html

    If it worked before — and it did — then why not now? Opposition to the idea seems more ideological than logical.

  2. Bob Major says:

    The key, perhaps not so inconsequential, differences between the collapse of the Japanese real estate bubble and our own are: 1) the greater relative reliance of our economy upon serial bubbles and debt-fueled consumption and 2) our relatively lower national savings rate (zero).

    Nations are wealthy to the extent they produce things people want to buy: serial bubbles and debt-fueled consumption are not a functional equivalent.

  3. Mark T says:

    Both Mr Oman and Mr Edwards are correct yet in conflict. The conflict is over the objective. Is the objective to reduce foreclosures and keep people in homes – which keeps the number of homes for sale down and prices up, but leaves those overpriced assets in the economy to depreciate over time? Or is it to eliminate the overinvestment in housing, which is stimulated by a number of federal tax and “regulatory” policies, promptly? I tend to side with Mr Edwards because I think human society does not handle rapid change well and I fear for the country if we exceed the rate of change people can tolerate. But intellectually it is a close call. I think the burden on Mr Edwards’ camp is to articulate a long term path toward less investment in housing, e.g., by phasing in a minimum downpayment requirement and by phasing down the mortgage deduction.

    The same might be said for our over investment in automobiles.

  4. Mark T says:

    Both Mr Oman and Mr Edwards are correct yet in conflict. The conflict is over the objective. Is the objective to reduce foreclosures and keep people in homes – which keeps the number of homes for sale down and prices up, but leaves those overpriced assets in the economy to depreciate over time? Or is it to eliminate the overinvestment in housing, which is stimulated by a number of federal tax and “regulatory” policies, promptly? I tend to side with Mr Edwards because I think human society does not handle rapid change well and I fear for the country if we exceed the rate of change people can tolerate. But intellectually it is a close call. I think the burden on Mr Edwards’ camp is to articulate a long term path toward less investment in housing, e.g., by phasing in a minimum downpayment requirement and by phasing down the mortgage deduction.

    The same might be said for our over investment in automobiles.

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