After all that, it's crazy that government still subsidizes housing rather than letting the market work. The economy will recover from recession only when it is allowed to discover the real value of assets like houses. But the government refuses to allow this to happen. FHA has been blowing air into another bubble, while other agencies do everything they can to boost prices.
This includes leaning on and bribing banks to ease mortgage terms for people in default. The Obama administration announced that it would increase that pressure because "the banks are not doing a good enough job," said Michael S. Barr, assistant treasury secretary for financial institutions. Some Democrats want to go further. They demand that the government compel mediation over defaulted mortgages or empower judges to change the terms.
This sounds humane, but it is typical political shortsightedness. When government helps delinquent borrowers to get easier loan terms, it simultaneously makes it harder for marginal borrowers to get loans in the first place. That's because lenders must now factor in the likelihood of a judge changing the terms.
The know-it-alls in Washington "help" Americans by hurting them.
Why won't the government let housing prices seek their own level? After a Washington-inflated bubble, that would seem to be the wise thing to do. Sure, some people get hurt when prices fall, but others -- prospective home-buyers -- are helped. By artificially raising prices, the Realtor-Construction-Banking-Big Government Complex cheats honest low-income people who would otherwise have been able to afford a first home without begging the government for help.
Home ownership, all else equal, is a good thing. But when government lumbers into the market and subsidizes folly, that's a very bad thing.