You Heard It Here On AR First!

Have you ever went swimming in cold water? At first you dip your big toe in the water to see how cold it is. Then you walk in to just below your waist...... Man! This is cold!.....Finally, you take the plunge! You throw caution to the wind and fully submerse yourself. After a couple of minutes, you're used to the water and have a great time!

This reminds me of how our government has approached the crises in the housing and credit markets. At first all they did was dip their big toe in the water. That is, they didn't do much! Mostly they just talked crap about how the housing markets were just fine and that there wasn't anything to worry about.

Then lenders started dropping like flies and the real estate market ground to a halt in a lot of big time markets. Property values in some markets started to plunge. The governments reaction to this was a little bit more substantial, but still not much. In essence, this was them wading in until the water was up to their thighs.

Then the big banks and Wall Street Investment houses started feeling the pain....

Oh MY GOD! RICH PEOPLE ARE GETTING HURT......QUICK, DO SOMETHING!

In came Fed Chairman Ben Bernake and Treasury Secretary Paulson to the rescue....of the rich people. They looked at the situation and decided that the housing markets were just experiencing a "correction" and that what needed to be done was to cut the fed funds rate and the discount rate in order to help the banks out.

True, they at this point were all the way in, but the problem is that they are in the WRONG POOL!

While the government was focusing it's efforts on stabilizing the stock and bond markets, homeowners across the country were seeing their equity evaporate before their eyes. Some people, who had planned on refinancing out of riskier mortgages were stuck because the value of their homes had fallen. Other people who WOULD have wanted to buy a home became afraid that owning a home wouldn't be a good investment, so they decided to continue renting.

The real estate market entered a downward spiral and still the government did very little. President Bush and Secretary Paulson's introduced a "Freeze" plan, which in my opinion was a joke. But at least it could be viewed as the government finally sticking a toe in the "right pool".

Now there is talk in Washington and therefore in the media about doing more to deal with the crises. There is talk of forming a "Resolution Trust" sort of entity to buy the mortgages that are in default or in danger of default and "fixing" what is wrong with them so that people can afford to stay in their homes. The hope is that by doing this that it will reestablish confidence in the real estate markets and that people will start buying homes again.

Where Have I Heard Somebody Talking About This Sort Of Thing Before?

The Fed Is Looking Out For The Big Guy, But Who's Going To Look Out For The Little Guy?

Activerain 08/23/07

A Hand Up Vs A Hand Out

Activerain 08/27/07

A Hand Up Vs. A Hand Out 2

Activerain 08/27/07

Home Ownership Is Too Important To Do Nothing About

Activerain 11/26/07

Home Ownership Too Important 2

Activerain 11/27/07

Home Ownership Too Important 2 (cont.)

Activerain 11/27/07

I'm From The Government And I'm Here To Help You

Activerain 12/04/07

The Mother Of All Comments

Activerain 12/05/08

Take Two Fed Rate Cuts and Call Me In The Morning

Activerain 01/16/08

Is It Two Late To Save The Empire

Activerain 01/17/08

Four Concrete Steps To Save Housing Values

Activerain 01/17/08

Stop Pussyfooting Around

Activerain 01/29/08

No Such Thing As A Free Lunch

Activerain 01/30/08

Are Foreclosures Really The Problem?

Activerain 02/09/08

Honestly, I don't know why it has taken so long for the powers that be to start to come around to my way of thinking? I wrote the first of these posts back in August 07.

The reason that I'm pointing them out now is not to stroke my ego...though it does feel good to say "I told you so", but because "Housing IS Too Important To Do Nothing About" . And while there are a lot of people who don't have a bunch of faith in government run programs (myself being one of them), I also feel that there are some things that the government is in a unique position to deal with. The crises in the credit markets is one of these situations!

One last point.....if the government does eventually create such a program it won't be the first time. In addition to the Resolution Trust Corporation (which worked out fine, by the way) the government also created the "Home Owner's Loan Corporation, which at one point held 20% of all mortgages in the US. This was back in 1933.

Hopefully, it won't take us going into a depression this time before the government sees fit to directly address the problem.

R.B. "Bob" Mitchell

ValueList Real Estate Services, Inc.

Bob Mitchell is president of ValueList Real Estate Services, St. Louis' largest discount/full-service real estate and mortgage company. If you would like to find out more about Bob, ValueList or our flat-fee listing program, please feel free to visit our web site at valuelistre.com