Housing Crisis Threatens Stagnation

Free market fundamentalists instituted the ideology that unfettered free markets would self correct, maintain financial stability and demand for workers, this led to the banking crisis which caused millions of Americans to be trapped in housing debt. The banks blame the people, it’s their own fault. But this distracts from the reality that housing debt is one of the main reasons the US economy is not improving.

Even the Federal Reserve is saying the people need help. Ben Bernanke lowered mortgage interest rates to jolt the economy, but as William Greider states; “Bankers, investors and especially Fannie Mae and Freddie Mac, were preventing homeowners from taking advantage of the reduced rates.” “They threw up various obstacles to refinancing…”

Reducing principal is imperative to improving the economy; William Greider quotes the Fed “Because foreclosures are so costly, some loan modifications can benefit all parties concerned, even if the borrower is making reduced payments.”

William Dudley president of the NY Fed and Goldman Sachs alumnus said “most people in trouble, are victims of bad luck-they bought their house at the peak of market prices or they became unemployed through no fault of their own. “Punishing such misfortune accomplishes little.” But punish it we do, rights for the average homeowner have been diminished along with the value of their homes.

William Greider writes the current Obama administration “protected the bankers and other financial players who have resisted the painful reckoning needed to unfreeze the housing sector”.

Government won’t do anything about the housing crisis created by the banks. The Federal Reserve says the people need help, so where is that talking point on the campaign trail?

The Fed warns, “If nothing changes in the housing market, adjustments “will take longer and incur more deadweight losses, pushing housing prices still lower and thereby prolonging the downward pressure on the wealth of current homeowners and the resultant drag on the economy at large.”

All the candidates can do is blame each other along party lines. This administration is not helping people and the next administration is not going to help the people.

The Federal Reserve actively came out and said it strongly urges the banks for the lowering of mortgage interest rates and reduction of principle on underwater loans, either that or this blanket of debt will continue to smother the economy and diminish the wealth of homeowners, prolonging stagnation.

Neither candidate can or will eliminate this choke hold on the economy.