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Breaking the silence, thoughts on stimulus

So I haven't written a blog post in what pretty much seems forever, after my massive barrage this fall on the bank bailouts and economic issues. Many people are surprised I haven't chimed in on the massive "stimulus" bill that every-bodies been talking about. Part of the reason is I've been way getting things ready to launch with Timu and haven't followed all the details as closely as I have in the past but also because I just got burned out, frustrated and cynical with everything, particularly anything that involves Congress.

But, ok here's a few quick thoughts...

First of all and this one is gonna strike a nerve with a lot of ActiveRainer's, housing is not the core problem. Housing is a symptom of the core problem. True, it's a massive symptom that is causing pain for most Americans but because it's not the core problem, so we won't solve our economic issues by trying to fix housing alone. It won't lead us out of the mess like some claim, never has, never will. The core problem was/is massive amounts of cheap credit that caused people, corporations and even the government to take on a unsustainable debt load while at the same time not creating much of anything productive. Look at the LBO (leveraged buy out) boom that occurred at the exact same time as a prime example. Due to cheap credit corporate raiders bought out and literally destroyed thousands of productive companies for a short term gain. Enron should have been a warning, but it became a model.

Our amazing recovery after the .COM crash was a mirage, masked by financial wizardry, that attempted to create money out of nothing, and distorted the true state of the economy. Simply put we were looking for a quick fix but didn't create sustainable growth (thank you Greenspan and the financial industry).

Ok, now back to the stimulus, the problem is we are attempting to do the exact same thing, and I think it was Einstein that said the definition of insanity is "doing the same thing over and over again and expecting different results" The stimulus no matter what it is used for is no free lunch. It's simply the government taking on more debt which will come out of our pockets at a later date either via taxes or the government finally needing to start of the printing presses to not just inflate but hyper-inflate. Unless that stimulus is being used efficiently to create long term growth (which it's not) then it's a net negative for us, plus it masks the true problems a little bit longer allowing them to grow. I've read economics paper layout how similar attempts during the 1930's actually lengthened the great depression rather than saved the US, yet for some reason most economists seem to be gung hoe about it this time around.

But, but everybody is screaming about how the government HAS TO DO SOMETHING NOW. The problem is unless you do the right thing we'll actually make the problem worse, and we've been stuck in this loop now for years. We have to get out of this near term thinking where we are just reacting to short term problems and kicking the can a little farther down the road.

If the government is going to use stimulus it has to be done very efficiently to make sure that you are creating more long term value with each dollar spent than is being spent. Think of it like taking out a loan to build a business or an investment. Unless you can use that money to make more money it's just a bad idea because YOU will have to pay it back. The stimulus roughly works out to $7,500 per tax payer before interest (and yes it's debt, there is interest), so ask yourself, is your $7,500 being invested wisely or are you just buying $7,500 of stock in the next Enron?

Posted by Matt Heaton on 02/16/2009 08:38 PM

Comments (76)

Stimulus in the Mortgage / Finance Channel

economy, credit crisis, bailout

76 Comments on Breaking the silence, thoughts on stimulus

FEB

matt, You are right on. Housing is not the central problem, not at all

I think you said it as clearly as anyone I have heard yet.

The stimulus no matter what it is used for is no free lunch. It's simply the government taking on more debt

Hi Matt,

You're exactly right. Our politicians burying our children, and grandchildren, in debt. We should pay attention to this warning from one of our Founding Fathers:

"To preserve our independence, we must not let our rulers load us with perpetual debt. We must take our choice between economy and liberty, or profusion and servitude."

- Thomas Jefferson

Hip Hip Hooray, What a plan? I thought this was an emergency last week. Why isn't it signed already, let's go we need this like yesterday. America awaits.

I love reading your opinions. It's matter of fact.

Anyway, with everything the way it is...I totally am with you on the part about the housing market is what's caused all this. It's not. It's everyone and everything. We all contributed in one way or another. ...or not. Bottom line...I just need to live my life and keep doing what I'm doing...to stay afloat. I can't waste energy on something I don't have control over.

It seems no matter how many of us have spoken out or sent our input....they just did what they wanted anyway.

Back to basics..back to basics...

How are YOU Matt?? Say hi to Lydia!

Matt, although I agree with you essentially...I also disagree too. If we don't fix the housing problem with all the multitude of foreclosures and more to come we will have an enormous blithe in each of the neighborhoods even more so than we do now.

In my opinion bankruptcy judges should be given the authority to start "cram down" and reduce those loan mortgages to current value and let families remain in their homes. What is the difference between selling it at Foreclosure after it's been vandalized for value or less than simply reducing the loan amount...except for of course saving neighborhoods and homeless.

Loan modification for the most part won't work since it typically when used only extends the loan and lowers the payment each month. It becomes a band-aid for the homeowner who at some point due to divorce, death or job transfer ends up in the same place they are now.

As far as money for the banks, auto makers etc with bailout money, it seems that without any stipulations on that money it is not well spent. It should be obvious by now that no one appears to know how to spend the money wisely and prudently.

It took till the 50's to rebound from the 30's and I hope we don't experience that same level of time with our current economy.

Solutions...hmmmm

Gena,

I agree that we can do something to ease the pain from the housing crisis and Congress passing the laws needed to make cram downs possible is probably a good idea. In many cases they are in the banks best interest too, it's just the way that debt securities have been sliced and diced makes it a legal nightmare, and banks are still trying to avoid acknowledging the loss on their balance sheets (something they need to do) Your right loan mods are a bad idea, and I think that's now been proven out as most of the people that get mods have ended up in default 6 months later.

It's the things like the first time home buyer tax credit which are a bad idea because it's not creating a significant long term benefit relative to the cost. It's an attempt at a quick fix to prop up prices, which in many regions still have correcting to do. All the automaker and bank bailouts also fall into the quick fix category that ultimately makes things worse.

One area where I think the government could get a lot of bang for a relatively small amount of money spent is helping to provide small business loans. Small businesses are the most efficient job creators out there, and are what causes economies to innovate. Rather than propping up GM and Chrysler the government we'd have been better off if the gov. had taken 1/10th the money and made it available for small business creation in Michigan. We'd see lots of new companies spring up which would fairly easily soak up the layed off workers over time.

Matt - I think cram-downs will only raise rates to new homebuyers. I agree with you that tax credits for smal businesses would generate far more.

Sharon, Yes, cram downs would certainly raise rates for new buyers. But that's simply because the banks would be forced to acknowlege yes these loans are riskier than we thought and the rates would have to go up to compensate. I necissarily think that's a bad thing, it's going to happen at some point.

I'm not really talking about tax credit for small businesses. I don't think the availability of tax credits really are much of a deciding factor for most entrepenuers on whether to start a business or not. I've certainly never heard it discussed. I'd advocate either providing capital by making gov loans for small businesses much more available or something that's a little more out the of basically creating a whole bunch of investment funds to invest in small businesses and startups with the ultimate goal recouping the investment and paying the government (the taxpayers) back. $50B across, 50 funds specializing in every different industries each making maximum investments of say $10M could create a minimum of 5,000 (probably more like 50,000) new companies creating new jobs and innovating. I bet that would create more long term benefit than the stimulus package 16x it's size. Just a thought.

But, but everybody is screaming about how the government HAS TO DO SOMETHING NOW. The problem is unless you do the right thing we've actually make the problem worse, and we've been stuck in this loop now for years. We have to get out of this near term thinking where we are just reacting to short term problems and kicking the can a little farther down the road.

Yea, that is the cry from the Dem's in DC, but doing the wrong thing will be devastaing for years to come.

If this is such a great plan? Why couldn't the Legislature have time to read it, instead of being getting it at 11:21 and voting on it at 2:00.

So much for Obama's transparancy and putting it out there 5 days for us the American People to read.

I'll tell you why the rush?

Because as more and more policy changes were included, the more American People were ringing the phones off of their Congressmen and Senators. It would NOT have passed, given time to read it and understand it.

Hope all is well.

Matt I like your posts too and it has been a while. You seem to have a good take on things.

Btw whats Timu? I noticed you changed your sig over there.

Unfortunately, politicians feel the need to act and feel relevant. Doing nothing is not an option to them.

Now they see this as an opportunity to get all of their new programs started that have been waiting in the wings. A lot of this spending is just the beginning of new programs that will continue to grow into the future.

Matt... Have to agree with you that the stimulus package is going to do nothing but make things worse. And I'm sure you're more astute and knowledgeable than I. However, I still must disagree with you about housing being the core of the problem, i.e., fix housing and begin to turn the economy around. However, I'll wait and see, and be the first to send you a comment apologizing if you're right.

Matt, we've been had again. The ground work has now been laid to increase annual discretionary spending by over $500 billion per year. Do we really think they will cit back in later years. Already reducing the growth rate of spending is called a cut.

Jay

I agree with you. Its a big mess that they have been giving it a pain killer to for a long time. The problem is still there, they just keep covering it up.

Before I invest $7500 you can be sure I would read up and ask questions to understand the situation. I wonder how many Dems will lose their seats in 2010 because they never even read the stimulus bill?

We are definitely investing in another "Enron". Let the fever run it's course rather than drugging the symptoms away.

John I wonder how many republicans should lose their seats and more for what they did while they were in power. No one except Bush and Co. is to blame for this. Well that and the corporate powers that be.

It's a pity that you're a part of AR and you still don't know where the spell check key is. I find a ton of typos in your posts all the time.

"Are amazing recovery after the .COM crash was a mirage . . ."

It's "Our" amazing recovery . . .

If we are belly aching about congress not reading the stimulus plan, what about us bloggers not reading, spell checking, grammar checking ourselves?

Because people do judge us by the words we use (missuse).

Hi Matt,

Welcome back, enjoyed your comments. Very scary times!!

Miss Manners you have a grammatical error in your comment.

You wrote "reading, spell checking, grammar checking ourselves?"

It should read "reading, spell checking, and grammar checking ourselves?"

Also grammar checking is rather poor grammar.

"Because people do judge us by the words we use (missuse)." That is rather fragmented as well.

Do you enjoy that?

Sometimes (LOL) letting bad businesses fail is good for the economy, AND GOOD FOR TAXPAYERS. Sorry, I just don't think the federal government should be in the business of picking and choosing which company(s) to save from going out of business. If they offer a viable product/service they will survive. Those that don't, will either alter to fit the consumer's wants/needs or go out of business. If they want to freee up additonal capital for small business loans etc, fine. But lets not prop up bad business and bad businessmen.

Housing can create an economic recovery. Right after 9/11 housing was the only thing that kept our economy afloat. Housing didn't kill our economy, corporate greed did. If we want to bring responsibility back to corporate america we should consider pulling our money out of their companies.

Looks like I agree with the majority posting here - housing is just a symptom or maybe a side effect of the true problem. Can the gov fix everything by throwing more money in the hole?

Michael you said it well. I mean seriously who killed the economy? Some people made real good money off this mess.

Hi Matt, you are certainhjly more right than wrong about this issue but what caused the real crisis has not, nor will it be even touched by the main street press.

No one has to kill a bubble economy. It self destructs sooner or later. You need to look at what caused the bubble in the first place. It was artificially low interest rates and super relaxed lending standards. Sure many made great money off of the process but it's all the people who were enticed into buying a home that created the bubble. Easy and cheap money is what enticed them into the market and inflated the bubble.

Matt,

Thanks for writing. I've been looking for your take on things.

Economics 101 turned into English 101 in quite a hurry. Politics come into play and all of a sudden, this is becoming a microcosm of what's going down while we bitch about what's not going up.

It's fun to watch others wired to the bone over something they created. I most definately consider myself a part of that equation. I helped to create it; I was here. That written, I hope I'm not wired to the bone so fully that I don't recognize that being part of the problem is a part of the solution.

Tell you what, I think you, Mr. Heaton, are economically pretty wise. And while I'm not playing Bobby Flay to your "Local Grill Master" status anytime soon... I do have one question and it doesn't involve Russell Lewis and his orgasmic BBQ Sauce.

This economic situation started by affecting us (Real Estate Folks) first, at least on a more grand level. We were first in, we will be the first out. That's my opinion. My question is though, "Do you think that the Real Estate Professionals (on all/every level) who remain around once the proverbial financial ball swings back their way, become filthy comfortable money-wise. More importantly, will we learn from it all? "

And to Miss Manners, above, "An English Teacher once told me that my days were young. She was right; I died in her arms before I could count ten pubic hairs on my two lazy nuts. My English Teacher was earning a living, and I was yearning for a life."

Judge on, makes things fun.

Matt, I would agree with you in theory but also believe that it is going to take many avenues working and coming together to "heal" instead of "fix" this problem. I do appreciate the bad credit that was overissued and agree with you that this needed to be changed.

Matt- I enjoyed reading your thoughts and I also liked your comment about the small business loans. I agree with you that the housing crisis is not the source but a result of many deeper problems.

Matt - Great Stuff, I see the market capable of taking care of it self, I am I not sure Goverment "HAS TO DO SOMETHING NOW". Areas hit with large numbers of Foreclosures and short sales are showing very healthy of percentage of homes in escrow because investors and buyers are absorbing the inventory. The combination of lower prices and lower mortgage rates has a tremendous impact on affordability.

LA South Bay Real Estate Forecast

Shane- I love your retort to MISS MANNERS. MISS MANNERS is just upset because she is probably getting some bail out from some special interest group in the mass spending bill. LOL!

Matt- You have it right on, a business person speaking from a business perspective.

We all can do something.I don't stop calling, I don't stop writing. Even if it falls on the deaf ears of Congress, all together the people knowing collectively that all these calls are going in, gives us all the hope that we can make a difference.

Those deaf ears will be voted right out of office next term, guaranteed, things are a changing and that is why they are trying to get every last dime of social programs they can in the system since their days in office are numbered.

Depending on the government to bail us out, to save us, is a dangerous thing. We must depend on ourselves. This is America. This is the country where anyone can become a Chris Garner. Anyone can become a successful biz owner. You are right, the small biz must be recognized and appreciated for it is in the private sector that the good jobs will be made.

Sally- I will stand to fight another day. Never give up. The future of our grandchildren is at stake. They will be proud to know that you were one of those that at least tried to call and write to state your beliefs. They may not have listened to us this time, but this is a wake up call. We do have control.

FEB

Matt- here is an interesting observation:

The average age of the world's greatest civilizations has been two hundred

years.

These nations have progressed through this sequence:

From bondage to spiritual faith;

From spiritual faith to great courage;

From courage to liberty;

From liberty to abundance;

From abundance to selfishness;

From selfishness to complacency;

From complacency to apathy;

From apathy to dependence;

From dependency back again into bondage.

---Sir Alex Fraser Tyler: (1742-1813) Scottish jurist and historian

I'm sure glad we're getting $400 each though. That will really make up for the $7500 (plus interest) in spending they approved for each of us. We are all trading $400 in cash over the next year for $7500 in debt. I would rather put the $400 on a 100% interest credit card than do that deal. Yet, we are all forced into it. This should not have been as political as it was made out to be. Spending boat loads of money to ingratiate constituancies is not leadership. All politics aside this is highly irrational and in no way rooted in economic theory.

It looks like we'll all find out in the next 6-8 hours when obama is expected to sign it. We agree fully that the whole concept of passing a bill of this size should be done with full confidence, meaning ONCE ALL THE PAGES HAVE BEEN READ. scratch that, ONCE ALL THE HIDDEN ITEMS HAVE BEEN FOUND.

The most frustrating part of the bill and it's grass roots campaign events are mentions that this is the worst crisis since the great depression. Perhaps they haven't seen the 20+% unemployment numbers of 1982(9 million), 17,000 business' failed, and the high interest rate (we're at 0.1% now) not to mention similar debt numbers(relatively to inflation).

But it's all very true, this stimulus bill is a short term, "high". We researched the provisions for our local community as well as for our large surrouding cities. Once you figure out what segment of society and industry the bill is directed at, then it's easy to see that 1)many of these jobs are temporary and will be done away with when the job (road construction for example) is finished, and 2)that 13$/week won't help anyone buy a car/house.

btw: for those who didn't realize it, the 8000$ tax credit won't go into affect till next tax season and that is aimed at individuals making 90,000$ and 140,000 for couples respectively. In other words, the lucrative properties are going to continue to sit so it will come down to agents and builders alike to fork over more ongoing incentives to spark interest.

The fact that the democrats put out the bills content at 12:00 a.m , roughly 10 hours before the last vote, should have brought forth some protest, but now that the vote has passed, obama should do the right thing and council both party's leaders on what changes should be made. (here's hoping either party has had time, as a conglomerate, to read the full bill. But Obama already agreed to sign it today....

The 500$ billion in discretionary spending will have to be fueled by someone and you know who they are going to go to first. TAXPAYERS!!! Living in california in the near term is going to become a nightmare. They already have incredible debt and some of the highest state sales tax rates in the nation as it is. Wouldn't be surprising to see it go close to 8.5% across the board especially in los angeles county. Oneida county in New york could see it go to 10%. Just think of all the added revenue the federal government could have attained if it had not been for non taxed internet sales. (close to 20 billion/year).

Once again Matt, you always nail it on the head. Btw: When does TiMU go live? or out of alpha.

I do not think a band-aid is going to fix this situation - only letting things work themselves out from a free market system will get us going again - seems like we are rewarding people who made bad decisions and nothing for people who are doing it the right way

Matt,

I've always enjoyed your posts in the past and you hit the nail right on the head... minus some details.

What got us out of the Great Depression?? Certainly not FDR but World War II and the manufacturing base it created afterwards when the world came to the U.S. to buy products manufactured in the U.S.

Reagonomics got us out of the crap from the 70's.

The Tech Boom got us out of the Recession of the early 90's... along with "The American Contract" where Government spending was put in check and welfare was somewhat done away with.

Despite what the NAR would like people to think... real estate does not create an economy but is a sign of a healthy economy. The tampering of interest rates and lax lending standards only got us out of the last recession (that should have been much, much worse after 9/11) and now we are paying the bill.

Spending trilions to get out of the bill we owe is the wrong solution.... and in fact it will BK us since some new studies are coming out that even the massive wealth created during the mid to late 90's created by the tech boom cannot even pay this debt back.

Nice post Matt... agents and their clients need your help to understand this. Loan modifications and tax credits are only delaying the inevitable to correct real estate prices to where they should be to begin with before the artificial boom (real estate and economy) took place.

This post is essentially how I see the problem as well. It's a shame that the zombies and the zealots, the pundits and the politicians are currently in control.

That is not intended as a shot against any particular party. The zombies repeat the political mantra they hear. The zealots are fixed on whatever their particular issue is. The pundits make money by herding zombies and riling zealots to anger. The politicians posture and preen with any positive impact on the situation.

I think it is the next Enron, LOL : ). But time will tell. Great post !

Matt..... excellent post and well-said. I saw this featured last night, but I just had to get to bed. And I have been wanting to write about this, but I wanted to wait until the dust settled, because all I kept reading were negative posts about the $15,000 tax credit and some other things & because I was busy. At one point, I wanted to stick my head in the sand.

Overall, you it hit the nail on the head with this statement.. "Enron should have been a warning, but it became a model."

It was a model of higher ups just spending at will, so they could line their pockets, not caring what would happen at the end. And I was going to mention the .com companies, but you beat me to that in your next sentence. But as you stated, this is free spending by the gov't. Several of us have been screaming out loud to let the economy fix itself, without the help of the gov't. It seems like every time they jump in and spend on these bills, nothing happens.

One last thing before I go... I find it very ironic and very scary, especially when President Obama declares and screams that if we don't do this now, right now, tomorrow... that we will be a crippled economy. Huh? Aren't we crippled already. Personally, I don't think another 2 months would make a difference. I truly felt like I was watching a used cars salesman on TV.... boy, was he pushing for it right this second and people were applauding. Talk about the blind following the blind. I digress.

PS... oh yea, yes, the housing industry is not the major issue, the core problem, but it is a large issue. So I agree with your statements on this.

Jeff Belonger

I'll believe the stimulus when I see it

Hi Matt -- I think until people find sustainable jobs, there will be no housing recovery, and with demographic changes, entitlements on the rise, people living longer, developing countries coming online, energy consumption increases, 2 wars to fight, 3 trillion already spent over the last 8 years between 2 million in tax cuts for the wealthy that haven't benefitted the average person, and a host of other things, coupled with easy credit as you say and an ever increasing debt load, and the like, and I think there is a fundamental and long-term shift going on that isn't going to rebound and stay that way, no matter what kind of shot in the arm the current stimulus bill provides.

I also agree with housing not being the problem. We are experiencing the domino effect of irresponsibility and greed. IMO. I wrote a similar thing a few days ago...it's about changing a mentality. Not spending money.

Matt,

I agree but it is difficult for people to wrap their head around the fact that sometimes the best help is no monetary help.

It's scary when you read about taxpayer subsidized entities, like schools, having tapped into this funky monkey.

Last evening I was reading about furloughs for state workers like prison guards.....reading here in Wisconsin that, "Layoffs is the last thing they want to do. Then I was thinking about city works- sewer, water, garbage.

Oh and of course there will be another .com bust too. Money doesn't really grow on trees and somehow it can't all continue to be free. There needs to be a sustainable revenue model.

The answer to this problem is for all of us.....government included to live on less than what we make. But that isn't going to happen. The answer to 9/11 was go out and spend some money! Interest rates were low. Credit was easy. I have a friend with a $1000 per month car payment. Are you serious!? There is a bottom to the barrel. We can't continue to spend our way out of a mess. But unfortunately, no one is listening.

It's good to have you and your analysis back, Matt. I think all of us in the housing industry have to spread your conclusion - it's not the housing industry alone that will solve our problems.

Matt - I think you've aptly described the situation. It is interesting the types of comments we are getting in this thread, with the majority of the comments being the "government should stay out of this and allow the market to rectify it." Isn't the "market" what gave us the problem in the first place? Before people throw out the John Locke metaphors, it should be noted I don't believe the stimulus bill as crafted is going to solve the problem.

Unfortunately, the solution to the problem is, truth be told, another depression. Why? Because the excesses of the past quarter century need to be drained from the system. This will allow the "market" to reach an equilibrium. The factor most "market centric" perspectives fail to realize is that in a global economy, after the market reaches equilibrium, the United States may no longer be the economic force du jour. It could be Europe, China or more likely Russia with a nod to the middle east.

How many ActiveRainers are prepared to be the sacrificial lambs in the "solution" to the problem? I see alot of "get rid of the pork but protect housing" arguments being raised here within our industry. It does illustrate the point that pork is in the eye of the beholder <grin>. I think people need to be careful here. Do you really want a purely market based solution to this issue? Remember the adage, "be careful what you ask for."

Thanks for telling it like it is. How else can we become a socialistic nation -- the government wants its hand in nearly every sector of business. More taxes, less representation. Still, we are much better off than most other nations...so, overall, I am thankful to live here. :)

I'm amazed at how many super accurate accounts I've read online. Everyone has realized the central problem, except maybe our government. Great analysis.

It isn't a stimulus bill.... It is a spending bill.

Well, here comes the lone liberal- as we all know and maybe have practiced - perception is reality - fake it till you make it etc. America's emotion is what has to change first and the stimulus is the vechicle that our government is depending on to do this. We have to feel good and have hope again in order to spend. Our spending is needed to create and sustain the jobs that make the goods or services we will spend on. Housing isn't the basis of the economy agriculture is but I bet we come in second. We need jobs so people have money so they can spend that money. My main fault with the stimulus is that there's too much emphasis on job retention for governement workers and not enough for small business development- but on the other hand small businesses develop despite government rather than because of government.

I agree with you 100%

Housing is not the issue. People need jobs. While WWII bailed us out of the great depression, we are at war now and not recovering. Where are the buyers for the war getting their products? Who are we borrowing this money from? How are we ever going to get out of debt without jobs and product that sells?

I don't understand ECONOMICS, however, this "Plan" just doesn't make sense to me if it is not all about jobs. We don't need to borrow more money, we need to make more money.

Great Post

I find it interesting that not one member of Congress had time to read this bill in it's entirity because it HAD to be passed IMMEDIATELY, but that 7 democratic senators are now jet-setting in Europe. If there was such a rush to get this passed, and no one had time to "read" it, why hasn't Obama even signed it yet?

I've said this before and I got my rear-end chewed out for it, cheap credit came quickly after 9/11 as a means to keep the economy strong when fears of a stock market crash and fear of the unknown became inevitable. I've wondered on many occassions: Is this the "longtail" of the terrorist attack on September 11th?

I'm not giving the terrorists credit for succeeding on a unanticipated secondary level of attack, but no one else seems to want to take the credit for this mess...

Interesting points. I am so far from an economic expert that I hesitate to make a comment. However, the portions dedicated to building infrastructure, green technology etc., aren't these investing in the future of our country? Perhaps no tax cuts and a focus on investing in technolgy and upgrading our healthcare systems etc. would be better?

Matt,

I appreciate you taking the time to write a post and I respect your opinion, but I have to disagree with your point about housing.

I do agree that we need to create an actual economy. We need to create businesses not just "jobs" and we need to have those businesses create value to the global economy. We haven't been doing this for a long time.

With all of that said, we won't have the economic environment and conditions that will allow for this type of innovation until the housing market and subsequently the banking and financial systems are stabilized. They are the foundation of our economy and country.

I don't think it is possible to grow an economy during a housing depression and credit crisis.

I respectfully disagreee. I feel the manipulation of the Oil futures and commodities by Wall Street Companies, coupled with the adjustable rate mortgages, the ones the lenders told home owners would probably never go up, and in a couple of years doubled their mortgage payments, had everything to do with it and are the ROOT of the problem. When these "bad mmortgages" where packaged and sold off as AAA investments, and failed, the investors went belly up, no more investors could be found. Lets take care of all those who got caught up in these fraudulent mortgage scams, and high interest credit card debit, and the problem will solve itself. Thank goodness we live in a country where we can all agree, to disagree.

I agree with you. The government seems to be bailing out companies that need to fail. Stronger companies will last, and new companies will appear to meet the demands of the market. The $7500 per person of cost is not the amount that you or I will pay, because a lot of people don't pay taxes,and they don't contribute to the economy, but they do get the benefits of govenment handout programs.

The govenment needs to stay out of the way as much as possible. With the exception of banks, I would let the markets manage the industry. Our govenment usually makes the cure much worse than the sickness.

If those in charge of policing the SEC and the practices of Wall Street Mortgage Bankers, didn't do their jobs, should the victims of their over sights, who are now losing their homes to foreclose, be the ones topay for their poor judgment?

Bravo Matt. Housing is not THE problem. Never was, never really has been. Housing chases JOBS. And there is a serious JOBS problem in this country. We counsel our investors constantly with "buy homes near jobs". It's pretty simple stuff. Create more jobs, then you create more wealth, and then the little human beings can go buy stuff...like a place to live.

Here in Phoenix we are suffering from putting too many of our eggs in the housing jobs basket. There is no longer a demand for housing here, but the housing industry made up a very unhealthy chunk of our job market. It fed itself in the boom times...and now it is starving itself to death. Job growth takes time, and we will eventually emerge as a more diverse job market here. That is good, but that takes time....and nobody seems willing to wait anymore in our society.

Where the stimulus plan leaps from spending scam to outright disaster, IMHO, is the lack of any recognition in the bill of the greatest handicap facing "housing" and "American homeowners" is: The Banks. The banks that are demolishing prices/values by giving homes away and undercutting each other, with no end in sight. They are an unnatural force in the market, and at least out here in the sunny southwest, they are steamrolling values into the dust. So much of the rhetoric is focused on "keeping people in their homes", yet if those homes continue to spiral downward in value...why would the people want to stay in them?

Interesting we do not hear much about the people in charge for the past eight years who got us all in such a predicamentto start with, and when the Dems try to do something about the problem, and believe me it is a problem, they still can't get support from the previous admin's old crows. Their definition of working together is, "Do it our way or no way" ..........

Great post....it's really too bad that more people out there just don't seem to get it.

CATO gets it and so do the economists that stood up against this monstrosity!

http://www.cato-at-liberty.org/2009/01/28/economists-against-the-stimulus/

The Hoover Institution gets it. Glenn Beck gets it. Dick Morris gets it. Ben Stein gets it....so why are so many people dead above the neck?

There is a wealth of information out there....but it does require reading and not just listening to mainstream media....

My father, who was a professor of economics and history, got it. It's a good thing he passed away in 2005 or he would have suffered another heart attack now. The SPIN is amazing....

The more I listen...the more hairs are in danger of being pulled out!

Matt: it's always nice to read a sober, thoughtful commentary that is also free-market based. One has to wonder if the problems would have worked their way out on their own. That's the $787 billion dollar question!

Matt, I mostly disagreed with you about the fall stimulus. I was wrong, and you were right. I think you are right again now. I'm on your side.

I don't think cram-downs are a good idea though. It would help people that made bad decisions, but it would hinder people that have made no decision... that is it would raise rates forever (compared to where rates would be without cram-down provisions).

I think that right now there are too many economists that are counting on flawed models instead of actual historical research and too many that are pursuing ideological goals rather than sound policy.

Miss Manners... Your critique was incorrect.

Shane... A comma and an "and" together would be superfluous...

But I'm not criticizing, I mis-use the language all of the time...

After reading all this, I still don't know who to believe. I guess, I will just keep on working and hope for the best.

Matt...We are very independent thinkers here in New Hampshire I have great respect for Judd Greg, who passed on the chance to be Obama's commerce secretary. He couldn't get behind this so called stimulus package..and neither can I.

Matt,

Thank you for provoking the conversation.

Probing more deeply and asking more questions leads us closer to the core truths of an issue..closer to the root causes.

If we probe a bit deeper into the causes of the current state of affairs, we do see, in my view, that housing, while it is very serious and needs an intelligent and creative response, is only symptomatic of a set of much deeper forces at play in our country.

As a nation, we are a vast landscape of creative possibilities, but we have lost many foundational principles which once gave us clarity, wisdom, and leadership. For starters, we have become deeply confused over right and wrong. Simple virtues like self-discipline, integrity, thrift, and resourcefulness have been wildly diminished. Take a look at what passes for the arts and you can see a society that has become badly degraded. The examples of a confused society are legion.

If we look at Congress - ideally the bastion of integrity, intelligence, and vision - we see the occasional example of inspired public service, but the norm is self-interest, corruption, and a complete lack anything resembling visionary leadership. They pushed the current package through with a complete absence of discipline and careful collaborative dialogue. It is laden with waste and payback. This body seems incapable of working in the larger public interest. The Congress, in my view, is a reflection of the confsion in the society about core primciples and timeless truths.

The hope is that the millions of regular folks in our nation who live good lives, do the right things, care about their families and neighbors, live with integrity, and see each human life as being something much more than matter in motion, will reverse the trends that are now in play.

God willing, we'll see a new day and a bright future for this astounding experiment in human freedom we call the USA.

Hi Matt...Many people have said the stimulus package is not the right way to go.

You wrote: "The problem is unless you do the right thing we'll actually make the problem worse, and we've been stuck in this loop now for years."

What is the right thing in your opinion?

Kate

Matt,

The government still controls our economy through all its agencies, so it's expected that they will also try to fix something that goes wrong. Whether they have all the answers right off the bat is a different thing. Without the government's recent involvement, for instance, our banking system would have already totally frozen over.

FEB

As we all know the stimulus bill was signed yesterday morning. Now it will be interesting to see if there is real transparancy in providing details to the average citizen. Putting it in an unsearchable pdf file online won't make that process very likely. Here's hoping that will change so we can all see what is contained within the bill.

Had to come back. EACH INDUSTRY has PEOPLE running it and it's not any specific industry ...like the housing market that got us in this mess...it's the people IN IT.

Four people here on Oahu arrested...scamming through their mortgage co. to con people in trouble with their mortgages. Federal arrests. Good for these PEOPLE.

Have we all changed our own spending habits too?

Darn...am I making simple sense on the specific point you made? You said....

The core problem was/is massive amounts of cheap credit that caused people, corporations and even the government to take on a unsustainable debt load while at the same time not creating much of anything productive.

I have to agree with the majority of your post. However, speaking as one who earns his living in the green housing market, I have to say that I am pleased with many provisions of the stimulus bill, particularly those pertaining to energy.

We have had a stone age energy policy for decades, and if the only way to infuse billions of dollars into energy efficiency and renewables is through this stimulus bill, I'm in. Do I like the idea of leaving my children and future generations with massive debt? No.

However, the reality is that we've been on a borrowing spree since before any of us were born. If I have to leave my descendants with a massive amount of debt, they'll at least inherit blue skies and clean water.

Please visit and reblog my blog post about the green benefits of the stimulus: http://activerain.com/blogs/rmoehring08

FEB

MAR

Why didn't they just GIVE $10,000 to every person over the age of 18 years....and let the MARKET sort everything out!!!

Instead they gave the money to the IDIOTS that got us INTO this mess..... and WE HAVE to pay for it.... NOT THEM!!!!

I am sorry...i read this post and it got me going......

=-)

JUL

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Matt Heaton

Bothell, WA

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