Did you watch Obama’s inauguration yesterday? Neither did I. I did, however, check today to say what he had to say about housing. Surprisingly, he said nothing.
I’m not complaining, mind you. I’ve felt for some time that government interference has prevented housing from recovering more promptly. Given what a hot button topic housing has been though, why no mention of it? Here’s what the Miami Herald thought:
On Monday, Mr. Obama did not make so much as a passing reference to housing or lost homes in his 2,100-word second inaugural, signaling that the worst of the crisis is behind us.
I believe that there is a different reason Obama didn’t mention housing. Why should he? The perception is that the Miami Herald is right. His programs to bail out homeowners were not very successful, but he has another engine going now to keep housing off of it’s lows, and it’s costing taxpayers $45 billion a month. It’s the Federal Reserves MBS purchase program:
The Fed is going to keep waving that “$45 billion per month” carrot in front of the banks until they rev-up the credit flywheel and create a new regime of toxic mortgages. (The new Consumer Financial Protection Bureau’s rule on “Qualified Mortgage”, which requires neither a down payment nor credit scores, makes this prospect even more likely.) Bernanke is playing the role that the repo market played before the Crash of ’08, that is, the Fed is promising to buy all the complex bonds (MBS) the banks produce off balance sheet to keep money flowing to the banks.
How does this help?
This is the Fed’s plan: Bail out the banks, transfer the banks bad bets onto its own balance sheet, hammer the greenback, slash wages (via inflation), boost exports, and pump as much money as possible into the unproductive, overbuilt black hole we call the US housing market.
The housing market is not really on the minds of Americans, so why should Obama bring it up? There are those analysts though, who believe that this policy is going to recreate the problems that caused housing to bubble in the first place, and believe that once more we’ll have similar results.