It Shouldn't Be That Hard To Understand

I've tried to sit down and write a post about how absolutely asinine it is to try to maintain inflated home prices - which is what our elected officials are advocating when they say "we need to keep people in their homes," or "we must stop foreclosures." Every time I tried to write the post though, I either ended up with a 10,000 word rambling diatribe, or something that was just plain angry. The concept is actually very simple, and two bloggers I read regularly hit it pretty well recently:

First, Barry Ritholtz, put it pretty simply and eloquently today (emphasis mine):

There seems to be this idea going around — both parties, both candidates, lots of economists — that the way to “fix” the economy is to stabilize home prices. This is incredibly misguided. Prices are still terribly elevated, and until they revert back to levels that are affordable and clear out the massive excess inventory of new and existing homes, there can be no stabilization. Of all the wrong lessons to take from the mortgage, housing and credit crises, this remains the very worst one. If you remotely believe in a free market — even one where players are regulated to prevent their own worst instincts from getting the best of the them — the last thing one should be doing is targeting asset prices. That is what Greenspan did throughout the 1990s and in the early 2000s, and it one of the primary causes of our present woes. Yes, you can regulate behavior; No, you cannot regulate prices.

Also, this weekend, the angry and maniacal Karl Denninger ranted on the topic:

There is no solution to this financial crisis that includes keeping home prices above parity value, which is defined as approximately three times median income vs. median home prices. NONE. Any such attempt prevents worthy potential homeowners from being able to afford to buy and keep a home. This makes it impossible for a healthy economy to be maintained, as the excessive home price pressure destroys disposable income for American Families. The result of such an intentional distortion is a demand for "bubblenomics" to prevent an all-on depression, as spending 50% or more of one's pre-tax income on housing cannot possibly work for all but the most wealthy of Americans; absent taking on more and more debt to cover the gap such a policy inevitably bankrupts all middle class and lower American families. This claptrap was precisely what led us into The Depression and now you advocate policies that would repeat these mistakes, covering your own personal culpability in creating the economic conditions that led us to this point.

Transferring such bad debt to the taxpayer does nothing; the taxpayer is the one who is already being hung by the neck as a direct consequence of the pernicious and outrageous fraud that was necessary to create the housing bubble in the first place. Transferring something from and to the same persons does nothing and America has wised up to the incessant lying you promote as "pro middle-class." The entirety of the bad debt written as a consequence of this fraud must be defaulted in order to clear the system.

The misconception that the key to resolving our problems is to maintain home prices and keep people in homes they cannot afford is an error that really shouldn't be hard to understand. The cure for a hangover is NOT more alcohol, although that's what our populist elected officials are trying to sell the people - and the problem is, the people are buying it... But the way to solve a collapsing bubble in housing prices is not to maintain the bubble in housing prices.

In light of tomorrow's election, I think it's appropriate to revisit one of my all time favorite Youtube videos, which really depicts what a proper political ticket should look like:

I'm not going to pimp one candidate or another here, but I will say I think I'm going to vote against every incumbant on my ballot.

-KD