Holman W. Jenkins penned a masterpiece editorial in the Wall Street Journal today.
Titled “The Fed Can’t Fix Home Prices” Holman lays it out…
To get to a real solution, speculators and investors need to believe that home prices are hitting bottom, that any mortgage debt they might buy today for 80 cents on the dollar today won’t be worth 30 cents tomorrow. Then the vultures will pile in: The transfer of wealth from the overleveraged banks and hedge funds to those who kept cash handy will be shocking, ugly and cathartic — but it will also be relatively quick. Credit markets will begin to function again. The economy will grow. (my emphasis)
Jenkins discusses some ramifications of a declining economy in a Presidential election year, and provides a sound argument that taxpayers shouldn’t be bailing out the mortgage lenders or those borrowers that bit off more than they could chew.
This afternoon I had the pleasure of meeting up with Adam Klawonn, Adjunct Professor of Journalism at ASU, Associate Editor of Phoenix Magazine, and President of Forrest Media, which produces The Zonie Report. (That Adam had time to spend a couple of hours chatting about blogging, online media and real estate is pretty remarkable. The guy has a full plate…)
We touched on whether or not the government should intervene in the real estate market.
Adam asked pointed questions: Is the “credit crisis” the fault of the lenders, investors, or borrowers? Should we (as in you, me and every other Joe Taxpayer) pay for the folks that used their homes like a ATM machine? (my choice of words, not Adam’s)
As I’ve said before, I think the government needs to leave the market alone and let market dynamics and fundamental economic laws play out — basically allowing the market to correct itself.
Jenkins summed it up well in the WSJ piece:
Millions of Americans have negative equity in their homes, but did not bite off more mortgage than their incomes could support. These people are still paying their mortgages and never imagined doing anything else. Millions of others have positive equity in their homes despite seeing painful declines in their home value. Now all these homeowners are to be taxed to benefit more irresponsible borrowers?
I may take a little grief from some fellow real estate professionals and I’ll likely piss off some folks when I say that I agree with Jenkins.
Oh well.
Forestalling foreclosures is simply putting off the inevitable. The fed needs to back off and let the market and economic forces play out naturally. Yes, it will take time, and yes, it will get bloody. But it’s the only viable solution.
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Hat tip to Scott Brunner, VARBuzz.
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Technorati Tags: Fed mortgage bail out, real estate economy
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{ 10 comments… read them below or add one }
Winning Ponies 03.13.08 at 1:49 am
I think that there should be some government help… heck, if we can afford to spend $8 billion per month in Iraq, the gov. should be able to invest some money into our economic condition for our future well being… yes, they could let the market play out, as it will, but the forclosures are huge right now and there are a lot of problems due to uneducated borrowers.
Charleston Real Estate Blog 03.13.08 at 3:38 am
Jay, I’ll stand in your corner with you and suggest that a government bailout would only postpone the inevitable. The market has always worked things out and will again.
I think “uneducated borrowers” are a fairly small percentage of troubled homeowners but should stupidity be rewarded with a free pass.
Dining Room Set 03.13.08 at 4:05 am
There is another dimension to this. Those who continue to honor their commitments by keeping up payments get the short end of the stick. This is actually robbing Peter to pay Paul. This is grossly unfair to honest people who pay their bills.
Florida Custom Home Builders 03.13.08 at 7:35 am
I think they shouldn’t interfere also in the lending crisis but it is an election year. I am opposed to the bailouts for home owners also. I rather see them give matching deposit money to those that the financial data is sound.
Don’t get me going on the war. I rather see us do a better job protecting this country borders, better standards on the food and rule out chance for terrorist attemps on food, l like to see homelessness and hunger of our children and familes who live in woods, cars and street stopped. I like to see better “green” alternatives and working towards not needing the oil we spend all the goverment money fighting for. I rather see infrastructure fix bridges especially. Lets make this country shine again my motto. We have lost all standing in the world due to war, currency, economic problems. We need to spend money here and bring this country back and from there we will have respect of the world let alone a place to be proud of again.
Sorry to rant!
Gatlinburg Real Estate 03.13.08 at 7:45 am
I agree completely. Govern(mental) intervention is nothing but a band-aid, and an undersized one at that. As harsh as it sounds, everything needs to just run its course and let the chips fall where they may. What I thought was quite humorous was the $200 Billion that the fed is going to dump into the economy to reset mortgage balances and rates as well as entice banks to work with each other and lend money. Where is the $200 billion coming from? China! With the current situation in regards to the economy, energy, food, the American dollar, etc., this country is going to be in a world of hurt as recession completely engulfs everyone but the top 5%. And all the while Exxon will continue to report 30%, 40%, hell even 60% increases in quarterly earnings. Who is running the freakin country!! Certainly not the people.
Gatlinburg Real Estate 03.13.08 at 7:54 am
@ Florida Custom Home Builders
You sound like you could possibly be a Ron Paul supporter. Not meant as an insult. I mean, what you just said in regards to the many issues at hand is the platform of Ron Paul. I agree with many of the ideas and solutions, to an extent. I also believe (here comes the conspiracy theorist part of me) that the round table that actually governs and runs the world will never allow border control like we all want. If anything, they want a North American super nation that consists of the United States, Canada, and Mexico. We may not see it in our lifetime, but I think the ball has already begun to roll….
Las Vegas High Rise Guy 03.13.08 at 2:38 pm
Jay, have you seen the company that will “help” you (for a not so small fee either) walk away from your home?
Lane Bailey 03.13.08 at 9:36 pm
We are in the same corner there… and I’m not surprised. Trying to fix what has already broken is just dragging out the pain.
Ormond Beach Florida Real Estate 03.14.08 at 8:47 am
I think the goverment needs to leave the market alone as well. To the lenders who profited during the boom right back at you with foreclosures.
What we need to provide is good quality jobs.
How will I spend my $600 has been a source of joke for me first I was thinking sending it to DNC that would show them with a thank you to be send to 1600 Pennsyvania Avenue DC. Then I joked I was gonna send it to Africa, Darfor and Oprah. Then I thought what the heck I pay my credit debt. Not sure the flavor of the week choice this week still working on it. Oh yeah I think I talked about buying $600 of chocolate now that one still has merit.
house mag editor 07.05.08 at 3:17 am
Some government help needs for sure - and best help is don’t touch the market at all.