Housing Market Costs Coming To Roost Now

Implications: The public is now going to be asked to support the housing mania of the 1st years of this century with tax look-backs to previous profits, with extended activity by the quasi-public lenders, Freddie Mac and Fannie Mae, and with government backing for loans written down to 85% of the new appraisal.  Industry insiders will love this direction as they seek to absolve their balance sheets of low quality assets.  If enacted to a more maximum rather than minimum degree, it’s possible that companies whose quality and liquidity issues should have sunk them will now have shifted all responsibility to the U.S. tax payer.  

Analysis: If housing is able to accomplish any such program, all consumer industries will feel entitled to make the same transfer, be they auto manufacturers, credit card issuers or the like.  Commercial real estate will feel the need too.   Indeed, as quoted in the article, “The economy has been taken hostage by people that took some very bad decisions.  The answer is to pay as little ransom as possible to the least ill-deserving people we can find.”   No doubt it is inevitable that tax-payers will rescue all this mess.  My view, however, is that we should not rescue one penny of the equity that caused all this trouble.  That’s not possible, for sure, but that maxim should be the guiding point of every rescue effort.