Without undue influence, prices are always right. From 2002 through 2005, there was undue influence because of lending practices. An abundance of distressed properties on the market the last 2 years has provided an opposite undue influence. Prices will find a stable level only when distressed properties become a minor part of the inventory. That stability should be the goal of both government and lenders policies.[/quote]
The “foreclosure crisis” is not some kind of freaky event that coudn’t be anticipated. If we agree that the fraudulent loans — made to people who could never pay them back — drove prices up to artificial highs, then we need to undo the effects of those mortgages by allowing the fraudulent mortgages and the artificially high prices to be wrung out of the market. This requires foreclosures which will bring prices back to **normal** levels, which in many cases is well below current “market” prices.
If anything, the govt should try to hasten the process so that we can get to the bottom more quickly. Only after we’ve reached the **real** bottom without govt intervention, can we begin a sustainable, market-based recovery.
Everything the govt is doing to prevent the “foreclosure crisis” (moratoriums, modifications, tax credits, witholding of inventory, etc.) will eventually cause far more pain than if they had let the market sort itself out. The recession will be prolonged, the money lost will be far greater and will be felt by the innocent parties as well as the guilty ones, and there will be an even greater number of mortgages that are “under water” because of the lag in price declines which causes more people to overpay on the way down…like so many are doing right now.
