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RSS FeedFederal Reserve chairman Ben Bernanke says allowing "jumbo" loans will save the US housing market
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| Disagree | 73% | 11 votes | Total: 15 votes | |
| Agree | 27% | 4 votes |
Disagree
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Add to FavoritesIt is quite unfortunate that people are starting to default on heir loans, but this is a capitalist society, and it would be as unfair to bail them out as it would be to bail out anybody else out of the bad decisions they made. People must pay for their bad decisions so that they can learn in the future.
The fact is that people took advantage of the cheap and abundant credit that banks were offering during the past few years. But since many of these people did not have good credit to start with, they procured loans with astronomical interest rates that most people could not imagine ever paying off. A lack of cognizance of the situation has come back and hurt them.
If Bernanke allows these "jumbo" loans, then inflation will be even more of a threat, and could hurt the responsible spenders and investors of this countries who have more to lose.
Anyone who took an economics class probably learned the term "moral hazard", which refers to corporations and/or individuals taking significantly more risk than they normally would with the assumption that if everything went wrong that the government would bail them out. This encouraged large international banks to lend to troublesome countries, knowing that if all went wrong, the International monetary fund woudl save them from losing to much money. This goes against some of the basic principles of good economics.
And as a nation built on economics, it is our duty to make sure that the government does not have too much control over the correctional market forces that punish the irresponsible and reward the prudent. So no, Bernanke should not allow these "jumbo" loans to let people stay in their oversized houses.
Learn more about this author, Daniel Azoulai.
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Agree
The Real Estate market for homes priced over $600,000 has stalled on both coasts. We need to get the market moving again or mass suffering will ensue. Allowing the market to remain frozen will result in a rapidly slowing economy. Raising the Jumbo mortgage limit from the current $417,000 was inevitable in any event. The current rate of real inflation (which includes food and energy) demands that the current cap on government sponsored mortgages be raised.
Failure to get the housing market moving again will punish all citizens, not just those with Jumbo mortgages. The jumbo mortgage owner is also the greatest consumer of goods and services. I am a responsible citizen. I took out a fixed rate mortgage, no teaser rates or interest only loans for me. Nonetheless, I am now punished by the irresponsible borrowing of fellow Americans. Many among us (including government) saw trouble coming three years ago. Now it's payback time, time for my government to come to my rescue. As a responsible American taxpayer, I deserve it.
I want what works best for me and perhaps for our nation. Inflation works best for me because it increases the value of my property in nominal dollars year after year. Inflation helps keep all mortgages safe by constantly improving the LTV ratio. An ever improving LTV allows citizens ever greater access to consumption stimulating home equity loans. Make no mistake, without ever increasing consumption, America slumps, then grinds to a halt.
Inflation also protects Americans and America by gradually erasing all debts both public and private. An anti-manufacturing, paper based economy cannot possibly pay off its debts honestly, inflation is the only way back to state solvency. Inflation allows all of us to pay back our debts with ever greater ease year after year. Inflation will give us the means to raise the minimum wage, giving more dollars to even the poorest among us.
Inflation is essential to a paper based economy and much preferable to its devastating alternative, deflation. A frozen jumbo loan market will lead inexorably toward devastating deflation for all citizens, not just jumbo mortgage holders. Inflation fattens, deflation starves.
Three cheers to Mr. Bernanke and our fearless Congress. Please raise the cap on government sponsored mortgages to at least $750,000 with all deliberate speed. Be sure to index the mortgage cap to the real rate of inflation to avoid financial kinks in the future. Inflation is a reliable friend to both the tangible asset owner and the debtor alike. Please don't leave debts for our children to pay, bravely inflate them away.
Learn more about this author, John Goodspeed.
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