Hard on the heels of taking over Freddie Mac and Fannie Mae, and the bailouts of Bear Stearns and now AIG, this week the Federal Government announced that it would try to bail out the entire economy — adding some (big) number in the hundreds of billions of dollars to what’s probably a half trillion or so commitment already.  The total price total price tag a half billion to a trillion dollars (or more).

Basically the idea here is that the Federal Government is going to buy up a lot of "bad debt", i.e., things like worthless mortgage backed securities, but details of the plan are still sketchy, and I certainly don’t pretend to understand how it’s all likely to unfold, other than to say I know people will lie about it.  Take the United Press International, which included this ridiculous assessment:

Obviously, conservative Republicans do not like using this amount of public money to bail out private companies: They understandably ask why the U.S. taxpayer should pick up the tab for others’ bad choices.

No, obviously conservative Republicans like to say they don’t like to use public money to bail out private companies, but it was conservative Republicans along with the Democrats who rolled over ten years ago, repealing the New Deal legislation that has protected us from just such a fiasco since the Great Depression.

How will this affect the housing market?

As I mentioned, details of the plan are still sketchy, but to me, this is the least well understood aspect of the unfolding story.  Will the government get into directly writing down the principle for people in foreclosure?  Will they be auctioning off foreclosures directly?

I don’t even want to hazard a guess at this point, but I suspect the government’s actions will do more to simply keep more banks from folding in the short term and make Wall Street happy.  I’m less convinced that it will significantly shorten the time to home price recovery, but that won’t stop politicians from hinting that it will to deflect public outrage.

Comments are closed.