chrisp, the TARP money is $700 billion. I wouldn’t call that chump change myself, but it isn’t anywhere close to the total extra money the govt has pumped into housing in the last 2 years.
Did you know that, starting in 2007, the FHLB system (with implicit guarantees from the govt) has put trillions into banks to lend on homes? That Fannie Mae and Freddie (whose private status is a fig leaf) have done the same? That the FDIC has guaranteed hundreds of billions of dollars of new loans for banks to lend out for housing? That the Fed has purchased in the neighborhood of a trillion dollars of trashed home loan securities from banks at way over market to keep the banks lending with abandon?
Almost every loan against housing in the last 2 years has been made only because the US taxpayer has arranged to pay the losses. If only private investment dollars had been available, with no govt intervention, very few home loans would have been made until:
1. Down payments had increased to cover most possible losses after the biggest home price bubble in recorded history. In 2007, right at the peak of the bubble, that would have meant minimum down payments of around 50%.
2. Home prices had decreased to levels supported by long term traditional affordability standards. After that had occurred, minimum downpayments could have come down to around 20%.
I have many relatives in Europe. They used to always rib me about the cowboy capitalist economy of the USA. I’d laugh, but I remember in late 2007 describing to one of them how 70-90% of the money going into US housing was from the government, on terms that no truly private lender would give. We were more socialist than the Europeans, in this one respect. He loves to argue, but he knew enough finance to see that what I was saying was correct. It’s even more true today. I don’t object to the socialism in itself, but the distortions and penalties created by these nutty govt home price policies, on a personal and macroeconomic level, are enormous.
