SM, would you be prepared to pay more for a house than you should and watch your next door neighbor sell theirs for 5% less than you paid for a similar house ?
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People Are Freakin' Ignorant
- Thread starter Tigerjaw
- Start date
Quote from Tigerjaw:
They were talking about somehow directly "doing something" to maintain housing prices. Bernanke paused a second or two after being asked the question - - he must have been thinking "I'm dealing with morons." - - and said that the government didn't have the ability to do such a thing. They seemed to be talking about some kind of price controls, and those do not work.
Housing prices rose in a bubble driven by cheap money. The bubble has burst. The houses are finding their true value in the market. There's no free lunch.
Define true value. So you're saying that cheap money caused the bubble. So can you unwind the bubble burst with more cheap money? I say yes.
Here's my thoughts...even if misguided. I think that the dramatic decrease in the price of housing is what is causing the pain...not the decrease itself...the rate of the decrease. If it were gradual enough, it would give people time to respond. If "things happen" that cause a bubble to pop, the best way to fix it is to reinflate the bubble and then let it out slowly. From that viewpoint, I don't see it as repeating the same mistake. For example, we (mostly) all agree that Greenspan got rid of the tech bubble turmoil by causing a bubble in real estate. IMHO, that would have been OK if he would have then taken steps to let the air out of the real estate bubble slowly over time. But I really don't know if that would work. Its just my opinion that it would.
SM
Quote from Now is Now:
SM, would you be prepared to pay more for a house than you should and watch your next door neighbor sell theirs for 5% less than you paid for a similar house ?
Neither me, nor my neighbor, would have to enter into those transactions unless we wanted to (sans divorce, death, etc.). And FWIW, I'd pay 25% more for my house if my payment was a net 5% lower because money was cheap. Likewise, my neighbor might be very happy to sell for 5% less than I paid if they could get into a similar house for a similar payment or less.
Make money cheap and accessible to the average man. It will prop up the market. Then slowly, slowly, raise the cost of the money over time.
IMHO, when I see steps taken to do that, I'll know the turmoil is close to an end.
SM
Quote from Smart Money:
Define true value. So you're saying that cheap money caused the bubble. So can you unwind the bubble burst with more cheap money? I say yes.
Here's my thoughts...even if misguided. I think that the dramatic decrease in the price of housing is what is causing the pain...not the decrease itself...the rate of the decrease. If it were gradual enough, it would give people time to respond. If "things happen" that cause a bubble to pop, the best way to fix it is to reinflate the bubble and then let it out slowly. From that viewpoint, I don't see it as repeating the same mistake. For example, we (mostly) all agree that Greenspan got rid of the tech bubble turmoil by causing a bubble in real estate. IMHO, that would have been OK if he would have then taken steps to let the air out of the real estate bubble slowly over time. But I really don't know if that would work. Its just my opinion that it would.
SM
Smart Money - - I think you have stated the recovery strategy very well - - much more clearly than most of the various policy wonks on t.v.
Of course, these are the two sides of the argument - - The one made by those pushing the various recovery programs, and those who think this will only be more of the same and will make things far worse in the future. They see the next bubble created to be the U.S. dollar, with devastating results - the crashing of a massive Ponzi scheme, crippling inflation. They (I'm in this camp) think that the government/central bank actions will only prolong the pain.
No one absolutely knows which course is best. I hope & pray youre right and all this somehow works out. I hope that the very people, mindset, and actions that got us to this place will now somehow get us out of it. I don't see how, though. I hope I come back in a year or two to apologize to the bankers and politicians I've been cursing over the years. I'm not very confident of that happening, but I sure hope it does. Regards, - - -
Quote from Smart Money:
All true. You've underscored my point that the government can take a role in effecting housing prices in the upward direction. Thank you. Which brings us full circle on the original question. Why doesn't the government do something that will keep the housing prices propped up? And what is wrong with (again) propping it up in spite of the current mess? Then taking those "props" away slowly?
SM
Of course gov't can take a role and it has. Are you missing the point that the current mess we are in is, in large part, from that "propping"? I guess you didn't quite get the full implication of my post after all.