CHESSNOID

I know I have blogged about this a million times, but now they have articles at big publishers saying the same thing.  The housing crisis is what caused us to slip into a recession along with the artificial rate cuts that the feds are still doing today.  The rate cuts are what helped cause housing to shoot up originally along with the exotic loans and speculators.  Now that the exotic loans and speculators are long gone, these second round of rate cuts will not have the same effect of propping up the housing prices that are still overvalued.

Fortune:

So far, government support for homeowners has been limited to a few modest foreclosure-reduction and mortgage-refinancing plans. But with tens of thousands of jobs being lost every month, the decline of values in the housing market – the biggest source of Americans’ personal wealth – is weighing even more heavily on the economy. House prices have fallen 17% over the past year, according to S&P/Case-Shiller data. Foreclosure filings rose 71% from a year ago in the third quarter.

The missing piece

The government’s failure to act pre-emptively and decisively on the housing crunch has only added to the problem, says University of Michigan law professor Michael Barr.

“The administration should have acted a year ago,” says Barr, who is a senior fellow at the Center for American Progress. “Doing something for homeowners is the key missing piece of the response to this crisis.”

The comments Thursday by FDIC chief Bair suggest that the government’s first priority is to speed the restructuring of troubled loans. But there are numerous hurdles to loan workouts, not the least of which is that some borrowers may simply have bought houses they couldn’t afford no matter the terms of their loan.

Beyond that, Barr points to the tax and accounting implications of removing mortgages from the securitization trusts where many loans reside after being sold to investors, for instance.

We have spent almost 2 trillion dollars in Fraud Bailouts this year. All of them are failures and have yet to produce real results. It is actually possible to be better off right now if the 3 stooges Bush, Bernanke, and Paulson had literally left the economy alone and done nothing. No kidding!

Once the housing prices stabilize, we will see the rest of our economy follow suit.  In order for the housing bust to correct, the prices must come down to what people can really afford to pay.  Those exotic loan products are mostly gone or unavailable, so people will have to qualify based on loans only  3-4 times their incomes.  This will drive prices of houses back down to what they should be.  Gone are the days when minimum wage workers could buy McMansions only to have to turn in the keys when the loan adjusted to the amortized principal and interest payments.