Wednesday, February 4, 2009

You have got to be kidding me

NYTimes: Both Parties Move to Aid Homeowners.

The title seems innocuous enough. Half of what's in the article is innocuous too.

Apparently the stimulus is being recrafted to include provisions intended to a) help reduce foreclosures and allow bankruptcy judges to renegotiate mortgage payments for homeowners in default, and b) stimulate the housing market because that is the cause of all of our troubles.

A) makes sense. B) is insanity.

The housing market is in a slump because there was a housing bubble. Trying to get people to buy more houses will not change the fact that the bubble must deflate. All you do is delay the inevitable.

There is an argument for doing so--that if you can spread out the pain and make the deflation longer and slower, the economic pain won't be as catastrophic. That's basically the argument for bailing out banks, or it was when "bailing out" implied breaking up businesses, restructuring, selling off bad assets, or anything else that involved dealing with economic pain rather than sending everybody off on a three-month cruise and hoping they all get drunk enough that they won't remember this "crisis" business by the time they come back.

But the problem with that argument in terms of the housing market is that people are not perfectly rational and no one is going to buy a fucking house right now. I don't care what tax credits you throw at them, it's just not going to happen. From the article:

Even though home-building has been depressed for almost two years, the soaring number of foreclosures has continued to drive prices down and kept the supply of unsold homes at extremely high levels.

See? Home-building has been depressed for two years, guys. That's because demand for houses has been down for longer than that. Nobody wants to touch a mortgage right now, and the number of people for whom the government can make a difference on this is negligible in terms of economic healing and/or stimulus.

The article in general is an odd read--it keeps lurching back and forth between reasonable things (make it easier for people whose mortgages are killing them to stay in their homes) and this housing market madness. Ah, but all becomes clear:

But beneath the consensus over helping the housing market, there are huge differences over who should benefit under the competing plans. Democrats want to aim money directly at people in the greatest distress; Republicans want to aim money at almost all homebuyers, on the theory that a rising tide will eventually lift all boats.

[...]

The Republican approaches are aimed much more at boosting the entire housing market, and would only provide indirect relief to families about to lose their homes.

Of course. The Democrats want to do something potentially sensible and the Republicans are yammering on in supply-side clich├ęs.
And--don't forget!--it manages to simultaneously come with a hefty price tag:

But senior Democratic lawmakers are staunchly opposed to the plan, warning that the costs could climb as high as $1 trillion.

It's amazing the duds these people can come out with. This is one case where bipartisan outreach is really, really not a good idea.

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