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Don't reinflate the housing bubble

By: Michael Barone
Senior Political Analyst
10/17/09 1:46 PM EDT

Our financial system broke down because we had, thanks to government policies, a housing bubble. So what is the response of Democratic policymakers? Inflate the housing bubble again. For intelligent descriptions and denunciations of this lunatic policy, read my American Enterprise Instutute colleague Peter Wallison’s October 16 piece in the Wall Street Journal, provocatively headlined, “Barney Frank, Predatory Lender,” and Charles Lane’s October 18 piece in the Washington Post, unprovocatively headlined “Doubling Down On the Wrong Housing Policy.” Wallison and Lane come from different points on the political spectrum; Wallison was a top aide in the Reagan White House and Lane was editor of the New Republic. But they’ve both got the same correct idea. Policymakers of both parties tried to increase home ownership and managed to raise it from 64% of households to 69%. But that proved to be too much. The defaults resulting from encouraging mortgages for non-creditworthy borrowers nearly destroyed the financial system and plunged us into a deep recession. Home ownership is down to 67% and falling. We should let it continue to fall. We’ve had about as good a real-world experiment with public policy as you can get in this messy world, and the intelligent conclusion is that 64% is about the right number. Let’s not make the same terrible mistake twice.

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Reader Comments

All comments on this page are subject to our Terms of Use and do not necessarily reflect the views of the Examiner or its staff. Comment box is limited to 250 words.

Anna

Oct 17, 2009

We must get back to the basics and return to mandatory minimum downpayments of 20% of the purchase price paid up front in lien free monies and all closisng costs paid at time of settlement in lien free monies. Also straight 15 or 30 year mortgages. No more APR financing. After all, owning a home is a privilege that one earns. It is not a right--it is a privilege.

bobc

Oct 18, 2009

And this mornning, out of Florida, over $2 million went to beauty & massage schools.

Shanghaied

Oct 18, 2009

Happy Daze Are Here Again!

Oct 19, 2009

Did you know that you can get a 95% loan? Hopefully the lenders are scrutinizing borrowers.

JP - Chicagp

Oct 19, 2009

The Federal Reserve is the problem. The Federal Reserve vastly increased the money supply and credit. What were the banks to do with all the dollars sloshing thru the system? Can't start it on fire ( theres too many) so they sent it out the door in loans hoping it would come back to them and it didn't. They had to REACH for borrowers.

anon

Oct 19, 2009

I strongly disagree with the author.

We currently have a stock market bubble.

That helps only the ultra rich, plus some day traders, with a marginal benefit of making people feel better about their retirement.

A housing bubble by contrast, and/or at least policy and/or other support of housing prices increasing helps far more people in a much more steady way.

Houses are real assets. Stocks are just paper primarily owned by the real rich.

We have made the mistake of recreating a stock bubble these past several months.

Obama and his Fed/Goldman banking buddies need to be stopped from this elitist stock market paper ponzi bubble.

And a focus on jobs and housing would offer much more equitable and TANGIBLE economic benefits for the LONG TERM.

whysoelitist

Oct 19, 2009

So only a certain percentage of people can own a home?

That is the most elitist bunch of muck I ever read.

Houses are a real asset that people can live in as opposed to a paper ponzi for only the super rich.

Essentially this article can be summed up as, let the rich have a stock bubble and keep the peasants from owning homes too. Wow!

Fearsome Comrade

Oct 19, 2009

Yes, only a certain percentage of people can own a home: That percentage of people that can afford to pay for one. If you want a house, start saving.

Don in AZ

Oct 19, 2009

"So only a certain percentage of people can own a home?"

You can't be serious in suggesting that's the conclusion.

64% seems to be the level at which a sustainable equilibrium is reached. Barone's point was that government policies encouraged a false equilibrium ... an unsustainable one. Hence the bubble, hence the burst, hence the attendant troubles.

This is basic stuff.

Ben

Oct 19, 2009

It should be pretty obvious that whenever we go much over 64%, bad things happen and lots of people get poor. The solution? Don't go over 64%, or better yet, don't go over what is sustainable by subsidizing people who can't afford homes and are likely to default. This shouldn't be that tough of a concept, but D.C. and "whysoelitist" don't seem to understand that their compassionate policies lead to a lot of hunger and devestation.

What's more compassionate, the policy that helps people in the short term and hurts a lot more long term after the politicians that started it are no longer around to be held accountable, or the policy that is harsh in the short-term and leads to tremendous economic growth and more wealth for everyone in the long run?

I'm gonna go with the latter.

kbm

Oct 19, 2009

The other thing people are missing is the requirement to have a total debt load less than 33% of your monthly income. That means all credit card balances, car loans, the prospective home loan combined. The bottom line is you need to be able to pay the monthly mortgage payment.

mark l.

Oct 19, 2009

this is only a small part of the problem.

loans, good or bad, are the resource that will be leveraged again.

The Gramm-Leach-Bliley Act (GLBA) remains in place. Larry Summers, a leading proponent of this change, has returned to render his 'advice'.

Banks will continue to provide insurance for their own bundled loans, at rates at which ANY independent insurance company would laugh at, again.

This was the main cause of our banking failure. It wasn't the resource(loans) that failed, it was the speculation on the resource.

Even if subprime loans are cut in half, the speculative market, without any independet analysis remains. All the players have been bailed out, yet they are under even more pressure to produce money.

Basically, we have paid off the addicts accounts, given them money to get their houses in order, but the addiction and availability of their 'drugs' remains.

we are so screwed...

Some Guy With a Job

Oct 19, 2009

Stocks are for the "super-rich"? Kids, you clearly have never held a real job. What do you think a 401(k) is, exactly?

B Dubya

Oct 19, 2009

Wait a moment. Was it not transparently obvious that Bwawney and Chris Dodds and the Community Organizer had that intent all along? I mean, hell, how do you think those boys planned on paying off their voters, except by pumping the housing market back up where they aren't 200 large under water on those ARMs they got from Fanny and Freddie? I'd say it was a done deal even before the election.
Of course, I am also sure the Democraps in Congress, with the willing cooperation from the seated RINOs (Olivia Snowe anyone? Maverick McCain?), did everything they could to pop that bubble just in time for the Obamasiah's ascension to heaven.

Of course, a bubble bred $600,000 house in 2010 dollars will still only be worth 16,000 silver dollars, or less than 600 troy ounces of gold.

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Don't reinflate the housing bubble

By: Michael Barone
Senior Political Analyst
10/17/09 1:46 PM EDT