SK I don’t think the argument is whether they have worked or not. I think it is very apparent that indeed they have worked.
However I believe that the housing market is manipulated to such an extent that the value of the asset (the home) is incorrect. To me the manipulation of the market is rooted in disproportionate risk/reward ratio that is at the heart of the institutional lending tree. This has allowed phenomenal gains to be made by the lending institution with all the risk being taken by the public and all the reward being made in the private sector.
I do acknowledge that the undertaking to an entirely private market is substantial, painful, horrific, however you want to characterize it. However I also believe that it is not something the government should be involved in at all. I think this is getting around to, well it sucks that it is this way, but it is such an f’d up situation that it is completely irreversible. I just don’t buy into that mentality, (also understand this is not a dem/repub thing)
When you say it has worked, well yes it has worked but we agree that what was less government backed before is now completely 100% government backed. The secondary market used to thrive. What happened was that the secondary market ignored risk and basically killed itself. Was risk ignored because of greed? Absolutely but was risk also ignored because there was an implicit belief that the safety net was there? I think so.
I believe a secondary market could indeed come to life again but why hasn’t it? I think very much because the value of the underlying assets are all distorted. So is it a chicken and egg sort of deal? perhaps. Valuations are distorted because of the easy money. Why is the money easy? Because of the low rates AND because of the government safety net.
The calamities you guys have spoke of, the return to normalcy is interesting. Return to a situation where people, pension funds, etc, are making a return on an asset that is ultimately overpriced only because of a govt guarantee on the value of the overpriced asset…
To me it seems sort of ponzi like. I am not saying it doesn’t work. We all knew it would work. Underneath it all, to me it is akin to a disguised subsidy that will forever result in incorrectly valued assets.
