A fall in home prices is our salvation. We are not seeing home prices to go to zero, just returning to the baseline where they began the 1990s, when they began to disconnect from salaries and from reality. Those who can pay their mortgage will pay and those who can’t will rent. This is not a crisis. We are being blinded by the banks. Cheaper home prices will lead to increased disposable income and stimulate more productive industries than the parasitic real estate industry that has sucked America dry for two decades.

DeDude, has it occurred to you what a tragedy it is that our economy is being propped up by housing prices? What would you say to people who could buy a home with 20% down if only the prices came down to reasonable levels?

The fact is that about 10-15% of the FHA loans will default. The remaining 85-90% will not default. The size of the downpayment will not change that default rate because people will default on monthly payments for lack of income not for lack of equity. The downpayment only influcence the exact size of the loss to FHA, and yes it will be bigger with 3.5% rather than 20% downpayments. However, if you increase the downpayment to 20% then it is not just the 10 % defaulting but also the 90% not defaulting that will be chased out of the housing market. So I contend that the damage to the economy (and government tax-income and people and etc.) from shutting down that segment of housing loans is bigger than the damage to government from taking a somewhat higher loss on the defaulting loans. The damage of a free-faling economy makes everthing else look like peanuts.

And yes the new homeowners could end up under water if housing prices were to fall further. However, the current mortgage holders would be even further under water if the new homeowners were not there to support prices with their purchases. So the overall “underwatering” gets less with any intervention that supports house prices.

And by the way I am not asking for this for my self, but for my country. I purchased my first and only home on a 15-year loan that was payed completely in about 8 years and I have never had a loan on it since (exept for a line of credit as an emergency back-up).

I agree with your 2:33 post, however the intervention in housing is actually most of all bailing out the little guy. I am not against the idea of moving debt from regular peoples balance sheet to government balance sheet by giving taxcuts to the low end. However politically the idea of higher numbers on government debt, is apparently not received well, not even by those who benefit (look at current redneck rallies all over the country). And moving around debt from one balance sheet to another is not going to increase aggregate demand – needed to stop depression and end ressesion. I actually think that over 90% of the pouring taxpayer money into the financials has already been done. My guess is that anybody that comes for more at this time, is a lot more likely to be taken down, (since massive panic is no longer a risk, even if they took down Citi).

Finally, someone else who agrees that few rules, but strict regulation are not incompatible! I’m all for legalizing most if not all drugs, but I’m also for vigorous prosecution of robbery, rape, and murder….

HCF

good one

BINGO! the absolute “moral hazard” essence of how we have arrived at the current state of affairs:
“…STRICT ENFORCEMENT of those few regulations. Obviously, the latter part of that statement is what we have been lacking.”