Tuesday, April 22, 2008

More Validation for Me!

Its not easy being so right about something so bad.

Many problems with mortgage bailouts

Yale economist Robert Shiller stated, "I'm not sure we can achieve continuing high home prices". Home prices are up 85% in roughly the last decade. Given the historic precedent of home prices doubling every 20 years, the recent 15% retreat in home prices is only fraction of the correction needed for the market to be at or near equilibrium. Considering the current tight credit markets, I think its safe to say that we haven't seen much more than the tip of the ice berg with respect to the correction in housing prices.

While many people think the Foreclosure Prevention Act of 2008 will arrest the slide of housing prices, they fail to grasp the concept and consequences of allowing housing prices to remain out of equilibrium with personal income. Barry Ritholtz, CEO of equity research Fusion IQ said, "If home prices don't go down, it means newlyweds can't go out and find a home they can afford". I have been saying this since Hillary Clinton first opened her yap on this subject. But I guess a PhD in economics or a successful Wall St career lends a certain amount of credibility that I don't have. Common sense just isn't worth much in this day an age.

Treasury Secretary Henry Paulson seemed to have the right idea, when he sought to insulate the major structural institutions from the housing market downturn. However, his Wall St roots can't help but allow him to be painted as being too good of a friend to Wall St. Although, some people see issues with this course of action. Keith Hembre, chief economist of First American Funds believes that by propping up the banks we are devaluing other financial objects. However, I think that he is under estimating the gravity of the situation that confronts our financial markets and banking institutions.

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