Joseph Stiglitz: Gov't policies to prop up housing market have failed and are prolonging the agony

[Better Believe It]

A better way to fix the US housing crisis
Government policies to prop up the housing market not only have failed to fix the problem, they are prolonging the agony
By Joseph Stiglitz
Joseph Stiglitz won a Nobel Prize in Economics in 2001 and is a Professor at Columbia University.
September 9, 2010

.... there are hundreds of thousands of homeless people (more than 1.5 million Americans spent at least one night in a shelter in 2009), while hundreds of thousands of houses sit vacant.

Indeed, the foreclosure rate is increasing. Two million Americans lost their homes in 2008, and 2.8 million more in 2009, but the numbers are expected to be even higher in 2010. Financial markets performed dismally – well-performing, "rational" markets do not lend to people who cannot or will not repay – and yet those running these markets were rewarded as if they were financial geniuses.

None of this is news. What is news is the Obama administration's reluctant and belated recognition that its efforts to get the housing and mortgage markets working again have largely failed. Curiously, there is a growing consensus on both the left and the right that the government will have to continue propping up the housing market for the foreseeable future. This stance is perplexing and possibly dangerous.

Corporations have learned how to take bad news in stride, write down losses, and move on, but our governments have not. For one out of four US mortgages, the debt exceeds the home's value. Evictions merely create more homeless people and more vacant homes. What is needed is a quick write-down of the value of the mortgages. Banks will have to recognise the losses and, if necessary, find the additional capital to meet reserve requirements.

This, of course, will be painful for banks, but their pain will be nothing in comparison to the suffering they have inflicted on people throughout the rest of the global economy.

Read the full article at:

http://www.guardian.co.uk/commentisfree/cifamerica/2010/sep/09/us-housing-crisis-policies

[chill_wind]

1. K & R. n/t

[GreenPartyVoter]

2. Have you read some of those comments? Wish they had an unrec feature over there.

[leveymg]

3. Glad to 5th this. Stiglitz is always a worthwhile read, and this subject is curiously avoided

even here. Guess a lot of people feel uncomfortably close to the topic.

[madrchsod]

4. the banks could save themselves but why should they....

they know the big bad federal government will bail them out.