The New Road

The Economy

What's been happening in the housing market, and the Feds reaction to it, is extremely trouble. A couple of months back the Fed said that it was reluctant to cut rates for fear or inflation. Now the Fed has cut rates twice by 1.25%, a staggering history setting cut, to try and stimulate the economy. All this to avoid what will surely be a complete collapse in the economy from home buyers who are way overextended getting pounded on mortages that they never should have signed.

My guess is that someone in the administration (but outside Bush's bubble) figured out that the economy was going to crash in weeks and not in the two years that they had been planning on. Two years would have had it crashing before the mid-terms of the Democratic President, which I'm sure they thought was perfect. But the housing market is rapidly collapsing as many home buyers can't pay their mortgages, period. So this short term stimulus and rate cut is primarily about giving the economy enough juice to limp over the 11 month deadline before it dies. Assuring Bush's place in Republican lore as a "President who was great for the economy", riiight.

I'm honestly at a loss as to how to legitimately get us out of the pump and dump mortgage mess we are in. Clearly we need more regulation and oversight on the mortgage industry, but that will help avoid the next crisis (unless a Republican is in office and de-funds the oversight.) The heart of the problem is that houses out in the deep suburbs in feeder communities for minor metro areas are just not worth that much money. Regardless of how big it is, a house that's a two hour commute from downtown Gainesville is not worth $300K. No amount of quick fix money or loan bailouts is going to fix that. And this is a story repeated in almost every community in the United States.

I used to shake my head as I would drive past these endless series of McMansions out in the boonies and wonder to myself; "I can't afford these. Who can afford these? And how can they live all the way out here?" The answer was, they couldn't, and they can't, and those chickens have come home to roost.