December 15, 2008

Only a Housing Bubble Can Save Us Now

Speaking of sarcasm, I thought this story must have been a joke when I first read it. It seems that incoming-Economic Council Chairman Larry Summers, in cahoots with some Keynesian profs, is cooking up a “new plan,” which, 

calls for the government to revive the moribund housing market by providing just about everybody with access to a 30-year fixed-rate mortgage with a 4.5 percent interest rate. That?s almost a full percentage point lower than the average national rate of 5.47 percent currently.

Buyers could borrow as much as 95 percent of the value of the home they purchase. The plan might extend to those with existing mortgages, allowing them to refinance and get the same terms. When either type of deal is complete, the lender will place the loan with Fannie Mae or Freddie Mac.

The new theory is that the housing meltdown occurred because not enough Americans were given loans they could never possibly pay back. Fannie and Freddie will be called on to remedy the situation immediately, and with a whole new batch of artificial lending standards. And re-inflating the housing bubble would only cost 3 trillion, and the good times might actually last a year or two (before the ARMs reset.) Everyone will own a home!

If Obama actually goes through with something like this, he’d be setting the stage for a new “Diversity Recession” of colossal proportions.

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