Follow us:

Northwest Voices

Seattle Times letters to the editor

February 22, 2009 at 5:21 PM

Obama’s housing plan

Bubbles and bursts

Editor, The Times:

President Obama’s $75 billion housing-rescue plan calls for the government to bail out homeowners and interject itself into loan-modification negotiations between loaner and borrower. But, propping up housing prices by bailing out foreclosures is just government meddling in the marketplace and, therefore, won’t work.

If a borrower can pay $1,000 per month, but the bank will only modify the existing mortgage down to $1,500 per month, the feds will come in and donate the $500 difference. But, this amounts to a price control — a price floor on home values.

Economics teaches us that price controls, whether price floors or price caps, shrink the overall economic pie by misallocating resources. This is Economics 101. Thoughtful people should always oppose price controls on principle because they make us poorer.

Contrary to popular belief, the cause of the current housing crisis is big government and overregulation.

The Federal Reserve System artificially holds down interest rates. This, in turn, subsidizes more loans than the market would naturally bear if the Federal Reserve Bank were not there. The federal Community Reinvestment Act (CRA) requires bankers to give risky loans to seek a good federal rating.

These two things are examples of how government regulation and meddling artificially subsidizes risk and over-loaning, causing housing bubbles and their corresponding bursts.

Let foreclosures happen and housing values drop and let people move into rental housing, allowing the rental market to flourish while the housing market corrects itself.

Prices need to freely fluctuate — even to obscenely low points — for the free market to work. Reregulating only throws gas on the fire.

— Jeff Jared, Kirkland

Comments | More in Economic stimulus bills, Economy

COMMENTS

No personal attacks or insults, no hate speech, no profanity. Please keep the conversation civil and help us moderate this thread by reporting any abuse. See our Commenting FAQ.



The opinions expressed in reader comments are those of the author only, and do not reflect the opinions of The Seattle Times.


The Seattle Times

The door is closed, but it's not locked.

Take a minute to subscribe and continue to enjoy The Seattle Times for as little as 99 cents a week.

Subscription options ►

Already a subscriber?

We've got good news for you. Unlimited seattletimes.com content access is included with most subscriptions.

Subscriber login ►
The Seattle Times

To keep reading, you need a subscription upgrade.

We hope you have enjoyed your complimentary access. For unlimited seattletimes.com access, please upgrade your digital subscription.

Call customer service at 1.800.542.0820 for assistance with your upgrade or questions about your subscriber status.

The Seattle Times

To keep reading, you need a subscription.

We hope you have enjoyed your complimentary access. Subscribe now for unlimited access!

Subscription options ►

Already a subscriber?

We've got good news for you. Unlimited seattletimes.com content access is included with most subscriptions.

Activate Subscriber Account ►