Foreclosures Are Dragging Down The Economy

Typically, construction jobs and more specifically, new home construction jobs spur economic growth and herald the end of recessions past. This is not happening today, and for very good reason. A recent Huffington Post article cited that thirty percent of home sales were of foreclosed properties. To put it another way, close to a third of all home sales taking place today involve foreclosures. That’s huge, and until foreclosures stop driving the housing market and until the huge inventory of available homes is reduced, home values will continue to decline and developers will not be inclined to build new housing developments.

The foreclosure crisis is a national emergency and clearly, none of the government programs designed to help families in foreclosure are helping enough people to make a difference. The problem is that all of the programs currently available remain voluntary on the part of the banks and are designed to ensure that the banks continue to profit, even if the underlying loan is so poorly underwritten and so poorly constructed as to be ultimately designed to fail.

Priority number one has got to be to stabilize the housing market, and that means stopping foreclosures. I don’t just mean delaying them, because all that does is kick the can down the road, I mean actually doing something that will stop them and keep families in their homes. To do that, the banks are going to have to lump it and a mass loan modification program needs to be implemented.

This will definitely mean that some banks are going to go under. Some banks are so seriously over-leveraged that it is only through governmental efforts to aid them in concealing the true state of their balance sheets that they remain open and profitable. Yes, profitable. The worst banks (Bank of America, Wells Fargo, Chase) remain open and profitable while drowning in a sea of foreclosures. How is that? Because current efforts to staunch the foreclosure crisis have resulted in massive delays that have allowed the banks to essentially ignore “mark to market” rules and over-report their assets and diminish their liabilities. Let’s face it, a thousand homes for which the value has dropped by hundreds of thousands of dollars are not assets. No, they are  huge liabilities, and the banks get to hide this fact. Banks like this deserve to go under.

Now, we’ve heard the arguments against mass modifications: it will create a moral hazard; it will keep people in homes they shouldn’t have been able to buy anyway, it will reward deadbeats, etc. The time for recriminations and blame has passed. The foreclosure crisis is crippling the economy and is in large part the reason why unemployment remains so high and why growth is stagnating.  So what, if a few people get to keep homes that they shouldn’t have been able to buy. Let’s weigh that against the certainty that the United States is falling into a depression the likes of which has not been seen since the 1930’s.

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One Response to “Foreclosures Are Dragging Down The Economy”

  1. TRACY says:

    .

    Buygeneric meds…

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