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A puzzling plan

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POSTED: August 14, 2008 5:00 a.m.

It's our view that U.S. Sen. Johnny Isakson (R-Ga.) is a good representative of the people of Georgia. But the support he and others have shown recently passed legislation to ‘stimulate the nation’s declining housing market’ is puzzling. After all, aren’t Republicans supposed to be against big government - or is that only when the recipient of government largesse isn’t big business?

Whatever the case, it’s now all too clear few in Washington have the courage to stand back and let the market handle the housing crisis, which was created by a series of circumstances that included greedy speculators, unscrupulous lenders and borrowers who knew they couldn’t repay the loans but gambled anyway, either hoping to ‘flip’ houses and make a quick profit or else allow the property to go into foreclosure with no intention to repay.

Almost as troubling to those of us who won’t need government help to pay the note on our homes - and won’t be eligible anyway - are the too many stories of who bought houses they couldn’t afford with credit they shouldn’t have gotten. When, to use an example widely circulated during the housing bubble bust, you have someone living on a school teacher’s salary buying a million dollar home, something’s wrong.

And as much as we feel for those caught in this mess who honestly were trying to do the right thing - be it as a builder, lender or borrower - relying on Uncle Sam is unfair and unwise, in large part because it also bails out the worst elements of the housing industry.

What's worse, it will help maintain home values which escalated rather dramatically in recent years and that’s why we find Isakson’s statement on his support for the legislation so troubling.

"One thing we must do is improve the plight of the American people economically, and there are two things overwhelming average Americans today. One is the price of gas at the pump. The second is the declining value of equity in their homes," Isakson said. "This legislation is an infusion of confidence the financial markets need desperately. We’ll put liquidity back in the mortgage market. There will be good underwriting and accountable credit issued by the mortgages that are then sold to Freddie Mac and Fannie Mae to provide liquidity in the marketplace. This is not a bailout for those two institutions. It is an insurance policy that’s good for this economy and good for this country."

Unintentionally, Isakson and those who see propping up the housing market as a good thing are also for cheaper gas. Are we the only ones who see the irony in that stance?

Here’s why. There are few basic necessities in life - food, clothing and shelter from the elements. We think in the modern world another necessity has become transportation, which enables workers to reach jobs that provide them with the mans with which to afford the other necessities.

So oil (or whatever form of energy we find in the future with which to get ourselves where we need to go) is currently a necessity, same as food and clothing and shelter. And right now there are those in Congress (including Isakson) who rightly believe that finding a more affordable supply of oil is crucial to the fate of the American economy. Indeed, in all cases of necessities except one, the commonly held notion is that the cheaper it is to buy, the better. In short, cheap energy is good. Less expensive food is good.

So why is more expensive housing a good thing? During the bubble which some say began in 1995 and really began to pop in 2005, home values grew by 45 percent when adjusted for inflation, according to some researchers. Salaries, on the other hand, only grew by 10 percent.

Why is that good? Some will say that’s because homes are also investments, and that's true. But there's a difference in investing in a home and using a home as a cash cow, and that mind set is one reason for the housing bubble bust we’re now experiencing. When you gamble with necessities and begin to treat them like stocks or ATM, trouble looms because homes, and affordable ones at that, are necessities.

That’s why our view is that it's better not to prop up the current system, let the chips fall where they may and start over once the bottom has been reached. It will be painful for some, but over time it hopefully will pay off with reasonably valued homes and, equally important, a system that limits the sort of behavior that got us into this mess to start with.

Jeff Whitten for the Bryan County News

July 30, 2008

 

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