I was listening to the radio today and an economist said this issue with the housing crisis could not be predicted. He was wrong. I was fortunate today to be able to call in and actually be heard. There are some major fallacies being spread around right now that we should address.
The first is that this could not be predicted. This was predicted, but people didn't want to listen. It was done quite well more than 10 years ago. Maybe the problem is that we've known so long, that we have forgotten. The issue with housings rise and fall has always been about the population distribution. The enormous size of the baby boomer generation drove prices up as this segment bought more homes. Closer to retirement they bought two homes. Speculators took advantage and bought a lot of homes. Now we have more too many homes and not enough buyers. The point to the prediction myth is that the size of the baby boomer population and its impact on the rise and fall of housing prices was predicted. Second is that if you are making bad loans, where you don't check if people even have jobs, how can you say you don't expect their to be a problem with bankruptcy in the future.
The falling prices is because of bad loans. The falling prices are because of a drop in demand. Supply and demand drive prices. There simply are not enough buyers in the market.
They took advantage of the public. If you ever bought a house you know that you have to sign 6 forms saying you read all the forms. Unfortunately a lot of people were sold risky loans they couldn't afford. I agree that poor practices lead to the people being approved for loans they should not have qualified for. On one hand, people should know better. On the other hand, they don't. We shouldn't bail out banks that make bad loans and sell them to people who can't afford them, essentially rewarding them for bad behavior. People have to be responsible for the debt they take on.
Its no ones fault and no one tried to do anything is a myth as well. McCain tried to put in legislation, late in this case is better than never. It was blocked by Dodd, because he was taking what I will call bribes from these institutions. They were significant campaign contributions that compelled him to act in the best interest of the Fannie/Freddie and not the American people. Most American's I think would translate that to a bribe. I think worthy of jail time and expulsion from his position as a representative of the people. He clearly is not representing the people.
Bush said in his address that the market would come back. That is normally true. Its not here at least not for a very long time. A significant change in immigration policy should have already taken place to deal with this problem, but that time has passed. There simply are not enough people in the home buying demographic to buy all the homes on the market, or the homes about to be on the market. So let me repeat that for you. Its not coming back, at least not the way most Americans think of a 7% per year increase in valuations. The best we can hope for now, is to hit bottom, assess the damage and begin to deal with the excess inventory. As baby boomers keep retiring and down sizing, or just dieing who will buy the homes? There simply aren't enough people to buy them all. Some will have to go unsold, or prices will have to drop so far, that people who normally would be able to buy a home, become eligible buyers.
So why do I think the Bush Administration really cares about this? Its not because they are looking out for the tax payer. I believe the real reason is that China has invested heavily in these American entities and stands to loose up to 10% of their GDP if this were to collapse. I'm talking purely housing here, not the AIG problem, which is somewhat different. If this collapses and China looses their money they invest in our economy, that will certainly have less money to invest, but the confidence will be gone and they will take their money somewhere else. This is where it gets somewhat complicated. America has a lot of debt. It can't exist without selling and feeding that debt. China holds they debt. Think about it as owing the loan shark, only in this case China is the Shark, America the Bait to be eaten and the tax payer who is setup to pay the bill. They don't want to talk about this topic because it exposes how driven by foreign interest we have become. It also points to the global collapse. So basically the tax payer in this case is bailing out other countries more than our own. Which would impact us, but they aren't being straight with the American people.