-- Posted Tuesday, 21 June 2011 | | Disqus
Rick’s Picks
Tuesday, June 21, 2011
“Phenomenally accurate forecasts”
An article entitled Government Stays Glued to Mortgage Market topped an inside page of the Wall Street Journal’s yesterday, offering a trenchant assessment of the real estate crisis but no easy alternatives. The 1,200-word think-piece, written by one Nick Timaraos, pondered the chicken-or-egg question of how to lure private capital back into mortgage lending. Should The Guvvamint pull back on support and hope investors fill the void? That’s the solution some policymakers are advocating, according to Timaraos, but we doubt they fully understand what it implies. They seem to think capital would return over time if Fannie and Freddie were made to compete for savings honestly with higher fees and no open-ended guarantees. And return investors would, although presumably not before housing prices collapsed a further 30%. Prices would undoubtedly have stabilized by then, although we doubt that’s what policymakers have in mind when they talk about helping to promote price stability in the housing sector.
Wading into the fever swamps of the academy for answers, Timaraos quotes Berkeley professor Kenneth Rosen, although we’re not sure why. Rosen’s one idea goes down easy enough – it’s only when you think about what he’s said that you wonder how his name wound in a Journal reporter’s Rolodex. “We’re not going to get a recovery in housing until the average borrower can get a mortgage,” avers Rosen. We’d like to think the good professor meant to imply that, if and when housing prices fall far enough, the “average borrower” will be able to afford a home. And we mean “afford” in the old-fashioned sense of the word -- i.e., putting 20% down, and making monthly payments no greater than 25% of one’s gross income. Since real incomes have shown no growth in this country for nearly two generations, it seems obvious that affordability will depend on lower home prices rather than higher paychecks.
Father Flotsky’s Doppelganger
Our gut feeling is that Timaraos understands this, but he nevertheless concludes his piece with a summation so delicately couched as to cross the line into double-speak. We quote his final paragraph in full because we think it is exactly the kind of pointless nonsense we will be hearing from policymakers in the months ahead: “Policymakers are right to worry over indefinite government stewardship of the mortgage market, which makes laying the foundation for a functioning market all the more pressing. If it's lacking, housing won't exit a destructive cycle: one where prices fall because credit isn't flowing, and where credit doesn't flow because housing is weak.”
This reminds us of the bumbling, blathering Father Flotsky, a Lenny Bruce character who is brought in to quell a prison riot instigated by the notorious Dutch: "Once a boy goes the bad road,” he tells the inmate, “the good road is hard to follow. When the good road is hard to follow, the bad road opens and the good road closes.” Ultimately, the priest brings Dutch around by promising him the Avon franchise at the prison. (“Did you hear that, you bitches in cell block 11!?”) We have grave fears that The Guvvamint’s solution for the still-ongoing real estate collapse will be similarly inventive – and equally futile.
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-- Posted Tuesday, 21 June 2011 | Digg This Article
| Source: GoldSeek.com
