With the root of the current unrest in our economy firmly rooted in the troubles of the real estate market, I have to question some of the current policies for our Federal Government. While distasteful to the mindless sheeple who are looking for someone to follow in railing against our government, bailing out the banking industry is the right thing to do. At least the lessons of 1929 are not lost. My issues there are with the way in which the deal was structured, and that it is not designed to have much of a return on investment to the US tax payers who funded the Bear Stearns buyout.
Getting back to the root of the problem, the idea of providing a bailout to the individual sheeple who took the short cut and found out that it didn't lead to the promised land is just a plain poor idea. It is my opinion that the first thing that has to happen for our economy to stabilize, is for the real estate markets to stabilize. for that to happen, everyone needs to get gigantic raises to bring the cost of home ownership back into reach or home prices need to come down significantly. This is especially troubling in the major metropolitan areas. Over the last decade or so, incomes have only increased about 25-30%, while at the same time home prices have appreciated more than 75%, even after the last 12 months of decline in prices. An entire generation of Americans will never have a chance to own homes if the present disparity continues to exist between home prices and wages. With the Federal Government contemplating a bailout of the individual, troubled, home owners, I can only stand by and shake my head and question the wisdom of the move.
I have several reasons for questioning a bailout of the individual borrowers.
First off, I am not sure that such an undertaking is achievable for a number of reasons. First off, there needs to be a way to modify the terms of the mortgage. I just don't see how it is practical to restructure millions of loans.
Second, the whole thing strikes me as very populist. Even if the endeavor fails, it seems as if our leadership is unwilling to make a challenging decision to forsake the few in favor of the many. I can identify with the problem faced by every incumbent who chooses this path, but that’s a whole different ball of wax.
Third, I believe that home valuations need to come back into line with incomes for stability of the market place to be achieved. I think that attempting to bail out the individual troubled borrowers only prolongs the market from finding a bottom which I believe is necessary for parity to be achieved. Parity in the real estate market needs to be achieved in order for Wall St to have a sporting chance at putting a real valuation on their CDO's. Only then will the true scope of the situation be known and understood. Until then, there will continue to be incomplete, yet staggering write downs from the investment banks on their CDO investments. Thus, the markets will remain unstable and the economy in recession.