Alan Greenspan said about a decade ago that the tech sector was showing “irrational exuberance”. The same could have been said for the housing market for the last 5 or so years. With the stupidity of house buyers ranging from statements like, “House prices never go down” to “Even if there is a recession I could always get a loan against the house”. This insanity is now coming to bite these people in the ass. Clear as day they’ve brought themselves, and the country as a whole into this quagmire of market correction.
I personally hope it doesn’t get too far out of hand, but the correction has needed to start for at least a couple years now. Since it is here now I hope that the correction doesn’t ripple to far across the world. Striking those that made bad decisions, and reigning in the prices so that those that have saved and diligently strived to purchase a home can do so, is much deserved. The tools used for these loans, the subprime ones, where built with this corrective idea in mind. Thus the reason for adjustable rates and other such features, now that these are going to brought to bear, those that can stay in possession of their houses with the subprime will now start covering the losses of the other subprime losses by foreclosures. The problem will of course blow out of proportion if state or federal control is enacted, a bail out is put in place, or other major bad decision is made. There is much risk, but America can ride through this without much issue if gradual, calculated steps are made to correct this problem.
We definitely need to stay away from some of the socialist mess I’ve heard, or even that of the Bretton Woods fanatics like Larouche. We don’t need to push for mandated controls, socialist mandates, or complete manipulations of the lending tools that are available. The last thing we need is only the US Government and the state/federal reserves left standing, which is exactly what Larouche and some others are suggesting should be enacted into legislation immediately. To do so would be disastrous, and even if they did reign in the credit issues, to keep the housing market priced so artificially high is insane. People should be able to buy reasonably priced, “MARKET priced” houses without this bubble boosting prices as it has over the last 4-5 years with artificially maintained low interest rates and such. Simply put, the rate should have been raised sooner and the financial tools, as Morgan said almost a century ago, should be more responsibly issued.
Even today though there are heroes stepping into the fray, that only a capitalist system of mutual trading partners could do, to invest and re-associate wealth to benefit the economy as a whole. Ken Lewis of Bank of America stepped in with $2 Billion to acquire a stake in the Countrywide Financial Corporation. This company has been a major subprime lender and is suffering because of it. Bank of America is now positioned to put forth more reasonable practice and push the company to repair itself, or to take it over in the near future if need be. Possibly, Bank of America could even take it over at a great price if the company falls into liquidation. At this point Ken Lewis could play even a greater role in helping people to maintain their home loans, but also to even grow Bank of America’s sway in the world markets.
Ken Lewis could play the modern day Morgan. In addition to him we have the others; Citigroup, JP Morgan Chase, and Wachovia all going to borrow $500 Million each from the Fed’s discount window. Of course, that bulks up the way our current monetary system works and keeps things going a bit smoother.
All in all though, these are the types of actions that need to be made over the next few months and years to keep things stabilized. Taxes dropped to a more reasonable level and the Federal Government getting out of the way of these moves, either by tax abatements, regulation removal, or other means is also a prime way in which to keep things running smoothly, and allow the market to return to a beneficial state for all of the world and especially the United States.