Nothing seems to get tempers flaring more than the topic of government bailouts.
Whether it’s for the Auto, Airline or other troubled industry or now for the home lender and homeowner, the notion of the government stepping in to “prop up” the market seems to run against the grain of the proud notion of the American free market economy.
Then again, it’s not like we have truly free markets.
There are rules and regulations that strive to control either prices or other aspects of many markets, labor laws that set many standards for organization, compensation and safety and of course there’s the Federal Reserve that plays an important, possibly overzealous, role in regulating economic growth.
Don’t get me wrong, I’m not in favor of a government bailout of lenders and homeowners but the point is, given that we have many examples of government tinkering in the markets, what level of response is appropriate and what is likely?
Keep in mind, many of the proposals specified to date are very limited and barely qualify as market bailout.
The “FHA modernization” bills have, in some form or another, been floating around congress for several years now.
Originally authored as a response to the affordability problems created by the booming housing market, they are currently being positioned as the crutch to be leaned on now that things are on the rocks.
Other proposals and measures, such as the recent FHASecure program, the temporary tax changes related to forgiven debt, HUD’s foreclosure avoidance initiatives, and even Hillary Clinton’s bailout fund concept, may be inherently wrong-headed, but it’s hard to see how any could make a discernable impact on the immense housing recession.
As housing and the economy continue to deteriorate, and as the main push of the 2008 presidential elections draws ever closer, I expect we may witness many new concepts but it seems almost impossible to imagine that any politician would propose any measure that would seek to blunt the downside for speculators or even middle income to affluent homeowners who got in over there head.
This likely leaves only the Federal Reserve’s rate actions as the main bailout that could possibly be on the horizon.
Again though, even with rate cuts, it seems to me that the key force behind the housing boom, namely ridiculously loose lending standards and mortgage liquidity, are things of the past.
Now, the great unwinding is underway and it doesn’t seem likely that any actions will prevent its conclusion.
