I don’t believe that there’ll be a catastrophe either. As I said before the general economy will be OK.
If there major shocks to the economy, we’ll have bailouts because our “way of life” depends on a growing economy. Most importantly, homeowners tend to vote.
Economically, I believe that bailouts/government intervention do work in smoothing out the bumps. For example, Argentina and Malaysia intervened in their crisis and were able to engineer good recoveries. Thailand and Russia, on the other followed IMF prescriptions causing more hardship for their populations. In the long term however, it’s better to let the markets self-correct. If you’re going to intervene, the key is knowing when to remove the government support.
Personally, I would hate to see a bailout because that amounts to welfare for the middle class and the rich. And I think that some tough economic love is sorely needed.
Real estate, however will be in the slumps for a long time and won’t return to the peak for another 15 years.
