Friday, December 12, 2008

I Told You So...

I don't draw a lot of comfort about being right on about something as bad as the current housing and credit crisis. However, I do believe that you can only save one group of people, the home owners who put themselves at risk with their bad bet on a risky loan or the people who are waiting on the sidelines because they saw that same bad bet for what it is. That said, I believe that in this situation, the prudent deserve their chance to flourish, as this country is designed to function.

That said, Bloomeberg and other news agencies are reporting that there will be another wave of loan foreclosures in 2009 after a lull late this year. Lull, that’s their word today. I was predicting this back in March. If you look at the chart in that posting, we are not much past the tip of the iceberg, 2010 isn't going to be good nor will 2011. Anyone forecasting a revival in real estate prior to 2012 is fooling themselves and trying to pull the wool over your eyes too. I am not sure that 2012 is the turn around point, but I am certain that the rebound will not come before then.

I also believe that any meddling that Congress, the President or President elect commit to in the real estate markets will only put off recovery even further. Its now widely understood that certain spending programs contributed to the length of the Great Depression. The catalyst for coming out of the Great Depression was World War II. I am not advocating war, but I am making a case against bailing out the individuals who put their homes at risk. Staggeringly low interest rates, 0%, contributed to Japan's lost decade after their housing crash in the 80s. Hard choices have to be made by our elected officials on Washington DC. I am not sure that there are many, or perhaps any, who are up to the task. The current Congressional leadership is certainly not up to the task. I see people who are blind to past lessons and are pushed to foolish actions because they are afraid to be perceived as doing nothing, but the fact of the matter is that by doing nothing and allowing the roughly 10% of the population who are at risk to go down with their bad bet is the only way to get back to equilibrium.

A third of the population of this country rents its home. Not all of them are would be home owners, but I am betting that there are more people who are frozen out of the market and will be frozen out of the market, than there are people at risk of losing their homes, if current price levels are maintained. Incomes are still not rising to meet costs of living if you want to own a home, regardless of where you live. Sure there are some markets that are legitimately holding their value or even going up, but they are the exception, not the rule. Even on the worst days on the NYSE, some stock some where sets its all time high.

In short people, wake up and smell the coffee, bailing out the individuals from their bad gamble is not going to turn things around. It will probably make things worse. So there you have, December 12th 2008, I am saying Congress, and people like FDIC chairperson Sheila Bair will make things worse if they continue to meddle with markets that can only be fixed by allowing them to naturally return to equilibrium.

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