Many analysts and politicians believe that since the housing bubble burst is where the economy took a turn for the worst and caused the Great Recession of 2008, that this is where policy should be directed to fix the economy.
Right or wrong, Democrats have been blamed for encouraging home ownership on people who could not afford mortgages via the Community Redevelopment and Reinvestment Act. Right or wrong, Republicans Gramm, Leach, and Bliley, in repealing the Glass-Steagall Act in 1999, have been blamed for oversight and decreasing regulations that may have prevented the Great Recession in the first place. The Securities and Exchange Commission has conceded that self-regulation of investment banks contributed to the crisis. Many economists, chief among them former Federal Reserve Chairman Alan Greenspan, have been blamed for encouraging variable rate mortgages, which when the interest rate rose, people could not afford to pay the mortgage.
The point is that there is more than enough blame to go around and no one party or profession is immune to the causes of the Great Recession.
There are at least three different lines of thought with what to do.
A first approach to fixing the housing crisis is to raze foreclosed homes, effectively decreasing the supply and consequently turning the tide on the decreasing value of homes, something that people are waiting to bottom out. The downside to this is that those homes are private property. Someone is going to have to make the case that the owners of those homes to be razed are going to come out on top after a sale is no longer possible. Also, there is no guarantee that with a reduced supply, demand is going to increase. And there is also no guarantee that private buyers are going to be able to get a mortgage from a bank. With interest rates at historic lows, banks have been unusually fickle about whom they lend to since they stand to not gain much from default.
A second approach, proposed by Mitt Romney, is to let the foreclosures happen and let the market do it thing. In doing so, the invisible hand of the market will rectify all that ails the economy. However, there is no guarantee that in the long run this would work. And in the short run, people will be forced out of their homes and families will be seriously disrupted.
A third approach is the recent Obama administration proposal that would involve refinancing home loans. By the admission of the administration, it won't do much: "This is only one piece of a broader strategy to help the housing market," said Housing Secretary Shaun Donovan, citing federal efforts to assist those who are delinquent or unemployed.
An admission that only a few will avoid foreclosures by this proposal should come on the heels of a robust plan than will prevent a lot of foreclosures. Taking time and spending political capital on something that is only going to result in a marginal benefit is not good policy or politics.
Housing is just one element of the greater economic recovery. The Greek debt crisis that threatens Europe affects our markets, and China's growing middle class and property bubble may undermine U.S. recovery if they become unstable. Clearly, there is no easy solution to this worldwide economic crisis.
History tells us economic recoveries are often long and jobs come back well after GDP growth has resumed. None of this is encouraging news and this is what most politicians are not willing to admit. Republican candidates each have their own plan to get the economy moving again largely based on trickle down economics, which is largely a myth. Obama has ideas that won't pass the Republican-controlled House.
The debt crisis proved that compromise is a dirty word among many members of Congress.
Maybe there is a nuclear option. Perhaps the deal that the President needs to make is to tell the Republicans that if they pass his Jobs Bill in Congress that he won't run for re-election - this is not to say another Democrat would not run in his place. But in doing this, if Obama's Jobs Bill doesn't work, then maybe he shouldn't get a second term. But if it does work, the windfall to Democrats could last for a generation and America would see that Obama put American jobs ahead of his own. He could successfully run on that record in 2016 or 2020.
PAUL HEROUX of Attleboro is a contributing columnist. He can be reached at PaulHeroux.MPA@gmail.com.