FireDream

The Housing Bailout Bill Has Been Signed Into Law

A few weeks ago, I posted some information about the then-pending bailout bills which have now been signed into law.  The bill, I noted, was a divisive one both in Congress and among Americans. I also noted that a number of people who I talked to felt that bailing out homeowners who had entered into risky home loans was unfair to those who had used more wisdom in their mortgage loan decisions.

In a recent Business Week posting, writer Chris Farrell echoed their sentiment-noting that it wasn’t fair.  He did, however, determine that it was necessary.  Citing Milton Friedman and Anna Schwartz’s A Monetary History of the United States, 1867-1960, Farrell notes that the Fed’s actions (and presumably, Congress’s) are shaped by the actions taken in the early 1930s.  When public confidence in banks fell and they withdrew their money, the Fed didn’t, according to Friedman and Schwartz, break the “cycle of fear”.

Farrell notes that there will some day be a review of the actions that were taken by Congress, the Fed and by the President in moving to bail out banks, mortgage lenders and individuals.  In the meantime, he says, people who didn’t engage in risky borrowing still have a chance to buy homes at a discount.

Not having read Friedman and Schwartz’s book myself, I can’t really comment on their arguments.  I am not as constrained with Mr. Farrell’s writings, however.  In truth, despite the headline of the peice (”Why Bailouts Stink-and Why We Need Them) I’m not so sure that he even believes his own press.  If he does, I respectfully disagree with at least one statement: that those who were prudent with their money will benefit from buying lower-priced homes.

I wholeheartedly agree that now is a great time for people to buy a home-particularly those who are first-time homebuyers.  The problem is that those people who were less rash in their home purchase can still have a difficult time selling their properties because 1) there are more homes on the market for sale with which they are competing; 2) they may not have as much equity as they need to sell their home, make a profit, and roll it into a new home; and 3) many media stories put absolute fear into the hearts of anyone who is thinking about buying or selling, making them less likely to take that step.

I guess only time will tell us whether the bailout was a wise action by the government.  As an American, as a business owner, as an investor and as a homeowner, I certainly hope that the reward is worth the risk at which we (and future generations) have all been placed.

This blog is intended for informational/entertainment purposes only and is not meant to provide any financial or legal advice.