was reading Joel Stein’s Time Magazine essay on the housing crisis. I listened and watched CNBC’s Rick Santelli rant and my first instinct is to agree with these folks. Yeah, I think its right that we shouldn’t bail out people who bought houses that they could no way afford, or bought houses as an investment, or were too unaware to read the fine print on the contract and know what was going to happen. Yes, if I have a good loan, and I’m not selling during this downturn, I’m probably not going to have major issues and should be all right. Of course who knows what the future holds and we’ll see what’s going to happen.
The problem that I see with this approach is that it only looks at the housing crisis as an isolated segment of the economy, but that’s not the way it really comes out. The economists that talk about the financial crisis that we’re in, say it won’t be better until the housing crisis is solved. We can say, O.K., let the housing prices go down, let the market reach its natural level, then everything will be better. The problem with that is that the house mortgages were packaged up in to bonds and other financial instruments that were then sold to investors. The investors have walked away from the market because they have no idea what the final value of market instruments will be. This fear pulled the stock market down to levels not seen in years. The drop in the market has frozen investments in businesses, and it has frozen the loan market, because the banks have no idea what their real values are, they’re holding on to all the capital they can as they try to stay above water, that means business loans , real estate loans, construction loans, and consumer loans are almost nonexistent. That means that people aren’t making or building things, and they don’t need employees.
What all of this means is that my 401K is dropping day by day; my job went away because my customers were afraid to buy products for their stores, because their customers have closed their pockets and are hunkered down waiting for the next shoe to drop. So even though my house loan isn’t in trouble I’m in the soup with everyone else.
Let’s be honest, the correction of the housing market will probably take three to five years, at least ,to correct, and when prices are dropping by 40-60% , my biggest asset, my house will probably be upside down for quite some time. This will have major effect on my retirement and my family’s future.
Taking all this in to account, I’m behind putting a floor under the housing market, I’m for the government clarifying the financial markets and getting the financial institutions on a stable footing, or closed down. If we can get these things done, people will begin to believe in the markets and will believe that the future makes sense again. We’ll all probably have less money than we had last year, but we’ll get it all back together and we’ll start again, as we have coming out of each correction in the past. So, while it galls me to help the irresponsible, greedy, and downright stupid, I have to swallow hard and agree to get things cleaned up. Of course, we could have avoided the whole thing, but that’s the subject for future blogs.