The economy is a mess, and there’s been a lot of finger pointing as to who caused the problem. Greed, lenders, speculators, the list goes on and on. Paul Kedrosky of The Street has a persuasive argument as to who is to blame:
[T]he housing market in the U.S. is so screwed up is that government has for decades been using housing as a misguided social engineering experiment. There is a lethally romanticized vision of home ownership in this country, one that says that right after flag and country, comes a 2,200 square-foot house with a yard.
It’s not true, and it never has been. A house is an asset. Pretending otherwise is a form of childishness that we can no longer afford.
There can be no denying this has been a costly misadventure. Home subsidies have caused a massive misallocation of capital in this country, away from productive investments and into housing and housing-related markets. Money that should go into bridges, manufacturing, startup companies and other assets with longer-run economic value has gone into housing stock. Spending that would have supported companies that build our nation, was squandered — in large part because the government has created incentives to make that happen.
People did what the government-distorted economics of the housing market told them to do, and now they we have a financial mess because of it.
No senior administration official has conceded that is the case. No one has said that a big part of the reason why housing is so messed up in the U.S. is because of misguided governmental meddling in this market. No one has conceded that it is not every American’s birthright to be a homeowner.
Instead, we are merrily and expensively reinforcing the idea that housing is crucial, an asset whose price declines we must be protected against, even if those housing price declines are what are required to bring back some semblance of affordability.
That U.S. housing policy has been an expensive mistake. Point out that being a homeowner is not in the Bill of Rights and thereby sacrosanct. Say that being foreclosed upon is an economic act, not a moral one. Let’s not make things worse by further perpetuating the dreamy mythology that got us where we are.
Kedrosky admonished Obama to admit that this was the problem, but Obama is not the only one that is due for a confessional- he’s got a lot of company on Capitol Hill.
i don’t think i’ll go that far in blaming the government. i will agree that they opened up the flood gates. However, it was still lenders that welcomed those troubled borrowers inside the gates…..and it was still the troubled borrowers that rushed in.
No matter, don’t worry, the good folks in the new administration have made it clear they will spend whatever it takes to artificially prop up housing prices and keep people in homes they could never pay for, even if it means the taxpayer literally paying down the principal on those loans, and keeping those who were actually responsible and saved for a place they could actually afford from being able to buy. Homeownership for the irresponsible must be protected!
AZSaluki-
I think to truly apportion blame, it would take a pie chart. I haven’t decided what percentage of the pie that I’d ascribe to government policy. It wouldn’t be 100%, but it would be a healthy slice!
The author ascribes some great government conspiracy to the housing fiasco. They aren’t that smart. We got here because of degregulation and a failure of existing regulation to monitor and regulate the “free” money that fed the boom.
Home ownership is in fact good for America providing the borrower is responsible. An overwhelming number of studies show much more stable negighborhoods that are owner occupied versus rented. And yes, these studies are adjusted for demographics.
Unfortunately the government fed by money from NAR (and the fact that 63% of homeowners vote Republican)came to believe that the rising homeownership rate was even better for America. However, simply putting someone in a home does not make them responsible citizens. The truth is that only about 60% of Americans are responsible enough to own a home.
twist,
i like the pie chart idea. it could be fun. it could be an interactive chart that we could all vote on and watch the peices (gov’t, lenders, agents, brokers, borrowers, etc) grow or shrink daily, just to see who people really feel should be blamed. and gov’t would have a slice on my pie too. i just don’t believe that, even with their policies that encouraged loose lending and ownership for all, that they ever held a gun to an underwriters head and said “approve it.” i guess i really lean towards the lenders in the blame game. they’ve always required a signed 4506-t for any mortgage, but they only began ACTUALLY using those forms to get your tax transcripts in the past year. previously, it was just another signed doc to stick in the file that they never pursued. and on the “liar loans,” how difficult would it have been to call the employer and simply ask how much the applicant actually makes? there were just SO MANY ways that the lenders could’ve verified that these borrowers WEREN’T qualified and i always believed that is what underwriters are for. some buyers, would of course, still been able to commit fraud and get loans, but in most cases it wouldn’t have been tough for a lender to figure out that the buyer should not qualify. they just had no incentive (other than ethics) to do so.
In that pie chart please take out a big slice for the fed. Way too quick in pulling the trigger regarding interest rates. Same as 10 years ago. No problem though bailing out the incompetent bankers. The fix is in. Igor says absurd
Kedrosky does not mention the mortgage interest deduction, which few stick their neck out to eliminate. The ‘ideal’ of homeownership should be explicitly disavowed. But it should be noted that in many cases it is not that someone should never own a home, but someone should not own this particular home, at this purchase price, at this time. Market particulars were ignored for a while.
Asset bubbles form very nicely without gov’t involvement. Were the feds pushing no-profit, venture-capital funding burning, marginally (being generous) useful, dot-coms in the late 90’s? Lots of tech investment has been great – Intel, Cisco, Apple – but lots of dot-coms easily qualified as “misallocation of capital …, away from productive investments”.
Right on winstongator.
Of course the problem with eliminating the mortgage interest deduction is that unless you made massive tax cuts to compensate in other areas, it would effectively be a two digit percentage tax increase. While this increase has now already been basically necessitated in the long run by the massive recent spending increases, I doubt they’ll collect it this way – two much NAR and NAHB campaign funding at risk (these are two of the top 10 contributing PACs).