Why Suffering the Pain in the Housing Market Now Is Important

I stumbled upon this post by The Real Estate Bloggers and thought that it was right on the money and was worthy of a repost.

One of my biggest fears is that politicians are going to try to soften the blows to the housing market over the next election year. I have preached about the law of unintended consequences and I truly believe that almost any action out of Washington will create more heartache rather than less.

Writer John Baden is able to put it into terms much more eloquently than I can, but the general thoughts are still there. Essentially, stupid people made stupid loans to stupid people. Undoing this mess is going to be painful, but like pulling a bandage off, faster is usually better. A long drawn out affair softened by government intervention will just extend and compound the pain the housing market will feel.

A society’s economic success is increased if it has sure and quick ways to accomplish this separation, however painful to those who suffer losses. While there will be political pressures to buffer folks from the consequences of economic folly or bad luck, it is socially dangerous to do so. Reality checks should have force, so that those who fail to prudently manage resources will not keep control over them.

My banker friend and FREE board member Leon Royer recently wrote: “Too many people (borrowers, bankers, investors and investment bankers) have done too many dumb things for this situation to be resolved without substantial pain disbursed over many folks. No optimistic happy talk will change the curing time; it’s likely measured in years.”

Economist Peter Linneman nailed it more harshly in “Making Sense of the Current Capital Markets Disarray.” He observed: “As for the idiots who lent (often without down payments or documents) to the idiots who bought speculative homes, they deserve to lose. People must understand this simple fact.”

Our pressing danger is not that many folks will go broke, but rather that opportunistic politicians will bail them out and insulate them from past and future folly. We need to find and support those who instead recognize the ecological question: “If correction is not swift, then what will follow?” The longer we wait for a correction, the more massive and painful their suffering — and ours — ultimately must be. That’s the way the world works. via TCS Daily

This post was reposted from The Real Estate Bloggers.