I told you so, didn't I?
I've kept to point out that inflating housing price (or keeping house price sky high) is the Washington's vital and fundamental policy many times in the past 2 years. Now you know and realize that fact. But you still didn't dig out the real reason behind the scene. Work harder to ask yourself more why, please, my friend (In case you don't know where to start, I'd like to give you a hint: please go check AIG the day and after.)
Obama is working on an approach that I called "top down" method many times. He eyes on the symptoms "shown up there" only and uses scientific "drugs" (man-made toxic substance) to control or depress the pains. On the other hand, I am trying to use "bottom up" approach to cure the disease "deep down here" Naturally (not man-controlled and all nature essence) by market forces of Adam Smith.
Well, don't blame the capitalist "Invisible Hand" not working since all the Washington politicians (as many of them openly admitted that they don't understand the financial world) and New York fat cats try to use toxic formula to eliminate the function of natural market forces.
Also, don't blame Obama since he is by no means a Chinese (Don't ask me why the famous Reagonist Jude Wanniski could be a Chinese in terms of culture, knowledge and wisdom.) Conversely he treats "KING", the predators said by James Galbraith or the ruling class called by Karl Marx), the most important.
Confucious said "People First, Country Next, and the King Last 『民為重﹐社稷次之﹐君為輕』." I am his follower as Jude is.
During President Obama’s State of the Union Speech tonight, he didn’t talk long about the housing market.
But, what he did say speaks volumes about his policy intentions and the questionable philosophy of his economic advisers.
Obama:
Now, the price of college tuition is just one of the burdens facing the middle-class. That’s why last year I asked Vice President Biden to chair a task force on Middle-Class Families. That’s why we’re nearly doubling the child care tax credit, and making it easier to save for retirement by giving every worker access to a retirement account and expanding the tax credit for those who start a nest egg. That’s why we’re working to lift the value of a family’s single largest investment – their home. The steps we took last year to shore up the housing market have allowed millions of Americans to take out new loans and save an average of $1,500 on mortgage payments. This year, we will step up re-financing so that homeowners can move into more affordable mortgages. And it is precisely to relieve the burden on middle-class families that we still need health insurance reform.
Barney Frank had already semi-officially declared high home prices to be government policy. But this is different…this is from the President.
They are working to “lift home values, allowing “millions of Americans to take out new loans“…do they not remember how we got in this mess in the first place?
It is true that rising prices increase equity and that equity can be withdrawn and spent. This mortgage equity withdrawal (MEW) can provide a short-term boost the economy, but the long-term results are obviously disastrous.
Continuing to borrow more money as home prices rise, hoping to someday sell and cash out before the inevitable collapse, is quite literally a Ponzi scheme. This was the economy from 2002-2007.
It doesn’t take an MBA to realize that this path does not lead to economic prosperity.
Who benefits from high home prices?
Banks – who take a greater share of our paychecks
State and Local Budgets – who take a greater share of our paychecks
Who is hurt by high home prices?
Homebuyers – who can’t afford a decent house
Homeowners – who pay too much in interest and taxes
Every other shop or business where that extra money could have been spent
The whole economy as this excess money is wasted on taxes and interest rather than on innovation and starting small businesses
So…why does the government want to lift up housing prices?
The answer: to restore enough homeowner confidence to prevent a stampede of strategic defaults that could cripple the economy.
For example: if Obama had said that the government was working to keep our banking system solvent while the housing market continues its natural market correction, millions of underwater homeowners might decide it’s not worth trying to fight anymore and walk away.
I would have preferred that Obama announce a principal reduction program that would have helped ease the debt-burden for millions of homeowners. Or, more simply, he could have announced support for bankruptcy cram-downs, allowing judges to reduce mortgage debt. This is the kind of help that homeowners actually need.
Instead, he proudly announced that the government will continue to spend billions to make owning a home far more expensive than it should be.
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