A shoutout to inside the Beltway: Helloooooo.... Housing prices may need to go down even FURTHER, babycakes... Down far enough to be within striking distance of a solid, traditional loan, based on the kinds of salaries being offered where the housing is located... You know, home prices becoming affordable for the people who would want to live in the homes? What a concept.
I don't know why all of those people who do investment for a living didn't look at salaries. I did, and I'm no investor; I aspire to someday being able to afford food. But anyone who bothered to look should have been able to easily see that in a lot of areas around the country, housing prices left local salaries way behind and spiraled up into the stratosphere. A bubble. You know what bubbles do? Bubbles burst.
Some areas can get away with some of that price inflation because they have a steady stream of home buyers who do not depend on local salaries for their income. Resort areas, etc. One example right in front of me is Santa Barbara, California, which has always had a problem with its workforce being unable to afford decent housing. Since it is a place where wealthy people desire to come to live, and often retire, and where there literally isn't a lot of space available to appease demand for housing and turn the place into ugly urban sprawl (which is actually why the wealthy people want to live there; this situation sort of goes around in a circle), housing prices get far away from what the people who work in the schools and the doctor's offices and the grocery stores can afford.
Some have been commuting from cheaper areas outside of the city, but with high gas prices this is getting tougher. My housemate takes a bus in, at a stressfully early hour that forced him to negotiate different hours from the rest of the office (since there is no later bus) for a 75-mile-each-way commute. He is legally blind and cannot drive to work. There are few jobs where we can actually afford to live. If there were jobs here, the housing prices would probably go up higher than we could afford (and we rent; can't possibly afford to own.) This is an imbalance the county (or the state) hasn't really addressed very well. I know there are other pockets of housing problems like this one around the nation, pockets of trouble which existed long before the recent bubble.
But there was no reason (except investors needing a place that they considered safe to pour their money into) for housing prices in a lot of places to have become so out of control. How could anyone think up, up, up and away FOREVER! was sustainable in an era where wages have been mostly stagnant for quite some time? Even OPEC learned in the 1970s that it could not kill the goose that laid the golden eggs. If you charge more for a commodity than your market can afford, eventually your market will do without the commodity, at great hardship if need be, at total devastation if need be, simply because they have no other choice. And unless you have other markets to turn to, you then end up with a lot of unsellable goods. So you lower your price or just keep all your goods lying around unused. Your choice.
This would have happened with housing eventually, but a delay appeared in the form of seductive "creative financing". Loan packages were offered that tempted buyers into believing they could afford a loan when in fact it was beyond their means. I'm told the President got on tv tonight and blamed those buyers. That's not really fair. I feel sorry for them, myself.
It's true that these buyers of bad loans irritated me a bit initially. Quite a few people close to me recognized they could not afford a loan until prices came down, and the fact that some people were willing to gamble on these strange and dangerous loans probably kept home prices up higher for longer than they would have stayed up without the availability of those financial products. This was unfair to my friends and to others who were living in cramped apartments waiting patiently for home prices to come down to be within reasonable limits in relation to the salaries paid to workers in the area.
But in the end I do feel sorry, because I don't think anyone bought a home with malicious intent. I think that the financial products were in some cases pretty complex and confusing and that what the buyers really heard was "yes you can afford this home!", period. They were seduced into believing they could afford something they wanted and needed badly. Something they had taken for granted in their childhood, when their parents had a much easier time achieving a middle-class lifestyle.
I don't think the lenders were necessarily Sith lords in disguise, either. My parents were bankers. I've known a lot of people who handle loans. They are pleased when they can help someone qualify for the home they have chosen to purchase. It's a happy occasion. That the financial product being offered is unwise, that it could even harm the economy in large doses, is probably hard for individuals or even individual companies to always see. That's what regulation is for. The go-go-go deregulators, like Newt Gingrich who is suddenly being quoted in news articles condemnning the current crisis and others of similar ilk like John McCain, contributed to this mess and I've yet to hear a single apology. Although Newt wants MORE deregulation, like he wanted drill-baby-drill (some people learn slowly?) while McCain is permitted to flip-flop because...well, because he's special.
Housing used to be considered a necessity. I don't know when the nation became ok with cardboard boxes under freeway bridges for some of our citizens. I'm not ok with that. I'm probably supposed to be living in one and I would not survive long there.
A lot of people make bad investments, and the taxpayer is not asked to borrow money, and indeed pay interest on the money, in order to bail out the investor. My mom sold a condominium, the one that was to be my permanent home, at a loss because she could not afford to carry the payments after my stepfather died suddenly. Naturally, after she sold it, it skyrocketed in price. No hope of getting a place for me now. I'm going to be dependent on someone's charity always (unless health care gets fixed. I'm no longer holding my breath for that). Mom herself is living with my sister's family and they just don't have room for me, too. Can mom call the treasury for help? Heck, she really needs and deserves help now that the company she worked for and which provides her small retirement pension and her health care is being affected by the financial crisis (you'll have heard of Washington Mutual...).
So normally investments carry risk, and unfortunately when ya lose, ya lose.
But we are being told that financial institutions must have a whopping amount of money borrowed on our dime in order to avoid a worldwide economic meltdown. IMMEDIATELY. Well. Maybe. If so, does that mean that it was STUPID to balance so much investment, so much multiplied investment upon investment like an elaborate house of cards, upon a bubble that was doomed to burst? What did investors think, that ten families might get together and buy and share a house to keep those prices up? Guess I'd better plan on getting up at 3 am; that's my turn to use the potty...I get kitchen privileges every Thursday...
I think we have the right and the duty to the generations following us who will inherit national debt to only consider doing something like this bailout with conditions. Which means Paulson and Bush need to cool their heels a bit. Have a glass of lemonade. Take a deep breath. Maybe we need to pass a bill within a month. I would hate to think it was needed within a week, but I can't say one way or another. I KNOW it doesn't have to be passed tomorrow morning.
One condition of any restructure needs to be that we must assume, allow for, and in fact look forward to home prices becoming affordable for average working Americans. Not just Americans with inherited wealth or Lotto winnings or large financial institution CEO-level pay. Do not even THINK of using our borrowed money to artificially keep us from being able to afford homes which we need to live in and to raise our families in.
Go play your investment games with something else, like fugu. Keep your dirty derivatives off of our necessities. We need housing, food, clothing, utilities. We need reliable and safe transportation, education, health care, some technology so we will not be years behind the rest of the world, and a little entertainment so we will not wither away from depression. We need good jobs with safe working conditions, reasonable hours, decent pay, and outlets for our talents and creativity. We do not want Enrons driving up the cost of our electricity (we're still paying for that one in California) to benefit corporate pirates. We do not want the entire world financial structure based upon our having unaffordable home prices.
Play with jewelry-quality gemstones! Devise some way to swap and trade different kinds of yachts or drive up the price of caviar to absurd levels if you must!
Leave. Our. Necessities. Alone.