Thursday, August 9, 2007
Economists say that that the housing slump is now imperiling the entire American economy. Although government can't do much more to improving the housing market, what should government do to soften the impact of the housing slump upon American citizens and businesses?
Forgive me if I don't have too much sympathy for those who bought into what can now confidentially be called the "housing bubble" of about 1995-2005, now that it has "burst." Yes, I feel for home buyers who were fooled by adjustable rate mortgages, balloons, and other nontraditional mortgages that are now costing them more than they expected. But I don't have much sympathy for buyers who simply took on a loan that was more expensive than they could afford, simply because a lender was willing to make them the loan. And I have even less sympathy for lenders who made risky loans, and investors who bought risky securitized mortgage loans - both in violation of good business practices. Bad lending and bad investing practices should be punished by the market, in large part so that businesses in the future may learn from the mistakes.
In addition to seeing their dreams of quick profits transform into red ink, some lenders are being forced by local land use laws to look after houses abandoned in anticipation of foreclosure (hear this NPR story about Chula Vista, Cal..) Just as some towns enforce height limits on front-yard grass, lenders may reasonably be forced to take steps to avoid eyesores and fire risks to the community. This is another way that they may learn …
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