• The Heritage Network
    • Resize:
    • A
    • A
    • A
  • Donate
  • In the Near Term, Congress Can Only Hurt on Housing

    Covering the current financial turmoil Wednesday CNBC reported:

    The root structure of the credit crunch stretches wide and deep. Many of the financial instruments involved are complex, unusual and difficult to value. Asset prices remain in a state of flux and the very players that need to be lending are the ones shoring up their balance sheets.

    At the core of the uncertainty in asset prices is the uncertain resolution of the housing bubble. When home prices were going up, very few people were defaulting. Homeowners who’ve suffered a 20% decline in home prices are 14 times as likely to default as those who have enjoyed a 20% gain. Now that prices are going down, people are increasingly likely to default on their loans and nobody knows how mush these houses are really worth.

    Recovering from asset bubbles is painful and rarely smooth, but there is no safe or prudent way to short-circuit the process by which assets find their new, lower, and proper values based on economic fundamentals. Congressional attempts to slow or soften the process would only serve to prolong and ultimately accentuate the pain. The sooner these asset prices find their proper levels, the sooner families, investors, and businesses can get on with restoring their finances and resuming normal business activity. Anyone offering an elixir to prevent or short-circuit this correction is selling snake oil.

    Posted in First Principles [slideshow_deploy]

    Comments are closed.

    Comments are subject to approval and moderation. We remind everyone that The Heritage Foundation promotes a civil society where ideas and debate flourish. Please be respectful of each other and the subjects of any criticism. While we may not always agree on policy, we should all agree that being appropriately informed is everyone's intention visiting this site. Profanity, lewdness, personal attacks, and other forms of incivility will not be tolerated. Please keep your thoughts brief and avoid ALL CAPS. While we respect your first amendment rights, we are obligated to our readers to maintain these standards. Thanks for joining the conversation.

    Big Government Is NOT the Answer

    Your tax dollars are being spent on programs that we really don't need.

    I Agree I Disagree ×

    Get Heritage In Your Inbox — FREE!

    Heritage Foundation e-mails keep you updated on the ongoing policy battles in Washington and around the country.

    ×