Another Idea To Goose Homebuying

Here we go again. When in doubt pump up the housing sector. Will these guys ever figure this out?

The latest proposal is for the Treasury to buy a big bond from the Federal Home Loan Banks (see link for an interesting Business Week article on the risks they entail) at a below market interest rate so those banks can then turn around and purchase mortgages from their member banks at below market rates. You get the idea. Subsidize mortgages so we can juice the single family home market and all will be well with the economy.

Am I missing something? I thought that pushing people into homes in an artificial manner was one of the precipitators of this mess to begin with. Why do we think doing the same thing again is going to get us out of the woods? Isn’t that the definition of insanity?

I’ve gone on about this crazy idea before. If you start creating a subsidized interest rate entitlement there is no way to end it. Moreover, most sentient creatures on the face of the earth seem to agree that we need to deleverage. That goes for the individual as well as the financial structure. Why then would the government propose a program to encourage more leverage at below market rates?

My God, I wonder if anyone is going to step up and say this is the way it has to be. No more free lunches! I think I may be waiting a while to hear that.

more: here, here

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