Paging President Obama: Where's The

The stimulus plan signed into law this week and the new efforts the President announced today to shore up the credit markets are likely to have numerous favorable effects on a rapidly eroding economy, but at least from the sound bites he and congressional leaders are making, there seems to be an imbalanced emphasis on plugging holes in the dam, not dealing with what’s missing most in our failing economy: buyers.

The economy’s fundamental problem (among its many “fundamental” problems), is that "ordinary people" - the 93 percent or the workforce still employed and who likely are still in relatively sound financial condition - are scared to participate in the economy. They are afraid to buy, to spend money, to invest… to do the things that stimulate and create markets... to help bring back to life the other side of our economy. The demand side. The emphasis seems to be on patching our troubles, not rebuilding. To do that, we need the demand side of the economy to reawaken. The $8,000 or so house purchase credit for first-time buyers is a nudge in the right direction, but it probably needs to be $20,000 or $30,000, or even more, and not be limited to first time buyers…. and maybe it should not have had income caps on who could take advantage of it, or if retained, at least much higher ones. Maybe we should have put $100 billion of the $789 billion rescue package into that effort.

Much of today’s speech about the Treasury’s coming efforts to stem foreclosures and beef up credit institutions seems again to put the emphasis on patching holes in our walls... That putty may keep the inventory of homes on the market from rising further (or more slowly) because it might stem the rising number of foreclosures, but it doesn’t create buyers.

We need buyers for our already inflated housing inventories. The nation’s housing supply is enormous, and in response, housing prices have dropped like a brick out of the sky in some areas. Falling prices mean more foreclosures. The rhetoric today sounded more like giving welfare payments to people who are cornered by an economy in a never ending slide. Yes, in many cases, it wasn’t the owner’s fault to be where they are. But the best thing for our distressed housing markets (and thus our economy) is demand. And larger tax credits, or bigger tax preferences of some other sort, and lower interest rates are the most obvious mechanisms policymakers have to make that happen. Yes, there was some of that offered in today’s announcement - the buying up of Fannie Mae and Freddie Mac securities. And yes, people on the verge of foreclosure need help. But if housing prices were lifted by encouraging people to buy again…to not be afraid of spending…of taking a risk…because the stimulus was a big shovel of help rather than a nudge - this too would make them better off.


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