The Washington Post's Entry in the "How Many Big Things Can You Get Wrong in a Short Article?" Contest
|Tuesday, 19 October 2010 06:12|
The Washington Post appears to have outdone itself in a discussion of the politics surrounding the foreclosure crisis. For beginners, it told readers that:
"Reviving the economy requires repairing the housing market."
What does the Post possibly think it means by this statement? Does it mean that reviving the economy means re-inflating the housing bubble? That's a novel economic theory. Maybe they should find an economist who won't laugh at it.
Does it mean that reviving the economy means allowing the bubble to complete its process of deflation. This would arguably be a good thing, because then people stop throwing money in the toilet buying homes at bubble-inflated prices. The further deflation of the bubble also means that homeowners would recognize how little equity they actually have so they can adjust their savings accordingly. But, this means a higher saving rate (i.e. less consumption), which would slow the economy, so it is difficult to understand how that promotes economic revival.
This great sentence continues:
"which won't happen until foreclosed properties and delinquent mortgages are dealt with."
The rest of the paragraph explains to readers that:
"So the White House, which is looking past the midterm elections, has been restrained. Housing and Urban Development Secretary Shaun Donovan wrote over the weekend that 'a national, blanket moratorium on all foreclosure sales would do far more harm than good, hurting homeowners and home buyers alike.'"
Okay, it's fun with logic time. Secretary Donovan wants more foreclosures, presumably to further depress prices. Nevermind that the impact is likely to be very limited at the moment, since banks already have a huge inventory of foreclosed homes that they are holding off the market.
If Donovan thinks it is good to speed up the foreclosure process then why is the administration pushing HAMP? According to Treasury Secretary Timothy Geithner, one of the main purposes of HAMP was to slow down the foreclosure process. So the administration thinks that it is very important to both speed up and slow down the foreclosure process? That may make sense to the Washington Post, but probably not to anyone else.
We should probably also mention the homebuyers' tax credits. These credits also temporarily supported the market. This allowed many homeowners to dump their homes at bubble-inflated prices. It also allowed banks to get out of mortgages that might otherwise have gone underwater, or in many cases, further underwater.
The article then gives us a quote from a Democratic consultant without a name:
"But shutting down foreclosures has the potential of shutting down the whole housing market, which isn't helpful to anybody."
Let's see, we have how many hundreds of thousands of homes that non-foreclosed sellers are putting on the market each month, plus a backlog of several hundred thousand foreclosed homes already in the banks' possession. How exactly does a moratorium on foreclosures shut down the whole housing market?
Then we have the orphan and widow sob story:
"A freeze in foreclosure sales also hurts private investors - including endowments, pension funds and mutual funds - who in good times greased the wheels of the real estate market by buying mortgage securities."
Yes, some endowments, pension funds and mutual funds made bad investments because their highly paid investment advisers were too incompetent to see an $8 trillion housing bubble. What does that have to do with an insistence that the law be followed when houses are foreclosed. Endowments, pension funds and mutual funds also lost money when companies in which they held stock were hurt by trade agreements. The Post has never mentioned this fact prominently. In any case, this is the way a capitalist economy works. Almost anything the government does or does not do will cause endowments, pension funds and mutual funds to lose money on some of their holdings.
The Post concludes by giving us a tirade from a Virginia realtor who "upset that deadbeat borrowers may get a break." Of course the issue here is simply making sure that the law is followed -- a fact that the Post managed to obscure very effectively in this article. Presumably even the Virginia realtor would agree that banks should not be able to throw people out of their home without going through the normal legal process.