Thursday, December 04, 2008

Media: there is no "foreclosure problem"

While I was driving today, I was listening to a radio show talk about the "foreclosure problem."


There is no "foreclosure problem", there is a "people bought more house than they can afford problem."

Got it?


3 comments:

tft said...

"Fannie Freddie Phony

So I was listening to Arnold Schwarzenegger before doing the This Weak round table, and he was mostly making sense — except for one thing. He asserted, as a simple matter of fact, that “government created the housing bubble”, because Fannie and Freddie made all these loans to people who couldn’t afford to pay them.

This is utterly false. Fannie/Freddie did some bad things, and did, it turns out, get to some extent into subprime. But thanks to the accounting scandals, they were actually withdrawing from the market during the height of the housing bubble — the vast majority of the loans now going bad came from the private sector.

Yet it’s now clear that the phony account of the crisis — that it’s all due to Fannie, Freddie, and nasty liberals forcing poor Angelo Mozilo to make loans to Those People — is setting in as Republican orthodoxy, part of what you have to believe to be a respectable member of the party."

Paul Krugman, Nobel Laureate, Economics

tft said...

"Post-Meltdown Mythologies (I): Americans Have Been Living Beyond Their Means

What brought on the economic meltdown of 2008? Besides the bursting of the housing bubble, Wall Street's malfeasance and non-feasance, and Washington's massive failure to oversee Wall Street, fingers are also being pointed at average Americans. Some of them took on mortgages they couldn't afford, of course, but we're also hearing a more basic theme that goes something like this: For too long, Americans have been living beyond our means. We went too deeply into debt. And now we're paying the inevitable price.

The "living beyond our means" argument, with its thinly-veiled suggestion of moral terpitude, is technically correct. Over the last fifteen years, average household debt has soared to record levels, and the typical American family has taken on more of debt than it can safely manage. That became crystal clear when the housing bubble burst and home prices fell, eliminating easy home equity loans and refinancings.

But this story leaves out one very important fact. Since the year 2000, median family income has been dropping, adjusted for inflation. One of the main reasons the typical family has taken on more debt has been to maintain its living standards in the face of these declining real incomes.

It's not as if the typical family suddenly went on a spending binge --- buying yachts and fancy cars and taking ocean cruises. No, the typical family just tried to keep going as it had before. But with real incomes dropping, and the costs of necessities like gas, heating oil, food, health insurance, and even college tuitions all soaring, the only way to keep going as before was to borrow more. You might see this as a moral failure, but I think it's more accurate to view it as an ongoing struggle to stay afloat when the boat's sinking.

The "living beyond our means" argument suggests that the answer over the long term is for American families to become more responsible and not spend more than they earn. Well, that may be necessary but it's hardly sufficient.

The real answer over the long term is to restore middle-class earnings so families don't have to go deep into debt to maintain what was a middle-class standard of living. And that requires, among other things, affordable health insurance, tax credits for college tuition, good schools, and an energy policy that's less dependent on oil, the price of which is going to continue to rise as demand soars in China, India, and elsewhere.

In other words, the way to make sure Americans don't live beyond their means is to give them back the means."

Robert Reich, Former Secretary of Labor, Professor

Parentalcation said...

"The real answer over the long term is to restore middle-class earnings so families don't have to go deep into debt to maintain what was a middle-class standard of living. And that requires, among other things, affordable health insurance, tax credits for college tuition, good schools, and an energy policy that's less dependent on oil, the price of which is going to continue to rise as demand soars in China, India, and elsewhere."

Last I checked, it seemed like people were cashing out the equity in their housing for Motor Homes, granite tile in the kitchen, boats, and muscle cars.

Income has nothing to do with the things the you mention. They all have to do with government effectiveness.