The Housing Market Bailout

Oct 28th, 2007 @ 6:50 PM by Alden Smith

First, let me apologize to readers for not being able to post the second part of the interview with Damion Flynn.  I did an upgrade to my Linux box today and am having some issues accessing the article.  I will post as soon as I can get this straightened out.

We look today at the current multi-billion-dollar proposed bailout for the housing market.  It seems the Dems and Repubs aren’t too willing to talk about it right now.  The reality is that the risky loans made near the end of the housing boom just can’t be bailed out. Douglas Elmendorf, a senior economics fellow at the Brookings Institution , “Some people are just in houses that are just way out of reach for them.”  This is something we have known all along.  It just can’t be up to the government to bail out people who have made bad choices.  Both parties see it this way. Elmendorf went on to say that politicians do not like “explicitly appropriating funds for this.”

I have felt all along that it would be this way.  it is a plain and simple case of “throwing good money after bad” and with all the rest of the government spending right now to feed the war in Iraq, it just doesn’t seem a possibility that the government can step in to help folks out.  Apparently, government officials agree.

What Can Be Done

Former Federal Reserve Chairman Alan Greenspan feels data supplied about the housing crisis is   worse than anticipated.  His current estimation is that the chances of a recession in 2008 is about 50-50.  Several things have been said that can possibly be done to help.  Lending law reform is needed to see that people are not taken in by unethical lenders.  Alex Pollock, a resident fellow at the American Enterprise Institute, has drawn up a one-page mortgage form designed to give borrowers a much simpler way to understand the financial commitments when seeking a loan.  It seems everyone has the right ideas, but what we need to see here is these ideas put into action.

The Market Now

Currently the market is predicting that projects that more than 2 million mortgages worth about $450 billion will default.  Certainly, these people cannot be bailed out and it appears the lenders will have to eat many of these defaulted loans.  It isn’t over yet…