I have not pulled any punches in expressing my discontent with how Washington has mishandled this economic crisis; how they have been slow to identify that there is indeed a problem, how they have been slow to respond to the problem, and how they have been ineffective and impotent in their response to it.
And so with that as a background, I need to express my concern about the builders who are now asking for a $250 billion bailout, according to CNBC.
Look, I agree that home builders, just as the Detroit automakers, have a significant "GDP" associated with them. They employ a lot of people and purchase a lot of materials. The home building process permeates through a lot of different industries; REALTORS, mortgage brokers, title companies, home warranty companies, inspectors, appraisers, etc. In fact, you could argue that even municipalities benefit from the construction of new homes because it provides them with a new property tax source.
A lot of good things happen when new homes are built. But I don't think that a lot of those in Washington recognize this because it is a splintered industry and because there are not any unions involved. The home builder industry doesn't have the Big 3, they don't have the UAW. In other words, they don't have the lobbying power that Detroit does. And for the record, I am against a Detroit bailout as well and would prefer to see a bankruptcy reorganization that would allow the Big 3 to renegotiate union labor contracts.
Now, with all of this being said, and with all of the benefits that the home builder industry can provide to the economy, we would be reckless to "bailout" this industry because it will only exacerbate the problem.
As I have been saying, mostly to myself, for nearly a year, in order to solve this housing and economic crisis, we need to sell the excess supply of housing; the approximately 1.7 million too many homes that are on the market. The same homes that are causing excessive downward pressure on home values which is ultimately leading to foreclosures.
Until this excess supply of homes is sold, this housing market simply can not recover. That is a fact. So any new stimulus or bailout that the government proposes that does not address this systemic problem with the housing market, will be ineffective in bringing our country economic and housing stability.
History has shown that in the absence of a stable housing market, the economy itself will be unstable.
So, rather than spend another $250 billion to bailout builders that would allow them to continue to construct new homes and add more housing inventory to the already underwater housing market, what the government needs to do is to provide a new fiscal policy that would stimulate new demand for Americans to invest in real estate.
In fact, you could argue, if the government is going to give the builders any money, it should be to have the builders STOP building.
When you drill down through all of these foreclosure and price decline headlines, what it comes down to is supply and demand. How effective Washington is in managing this supply and demand relationship for housing will tell us how quickly we can get the housing market and economy back on track.
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