Feds Missing Crucial Element to Solve Credit Crisis

The Federal Government has signed the 700 billion dollar bailout package, but as one reads about the bailout, and, all the commentary on the most popular news and financial web sites, they are missing a crucial element to solving the credit crisis. The bailout plan does not include a massive program to keep homeowners in the homes being foreclosed on. Both financial analysts as well as the Federal Reserve seem to offer the solution as: more of the past ! increase and loosen up credit- grease the credit wheel- get credit out to the consumers ! What ? This is exactly what got us into this mess, loose credit to consumers and investors who could not afford to pay it back unless home prices continued to rise- a veritable pyramid scheme. As long as cash flowed into the housing market, prices went up, people and investors then took out loans they could not afford because they planned on flipping those properties, thus, they planned to service those loans for only a short time until they realized huge capital gains on the sale of those properties. Now that the bottom has fallen out, because home prices in too many locations around the country exceeded what the majority of new home buyers could afford, sales slowed down which in turn, stopped the upward spiral of home prices, the Pyramid collapsed ! We need a massive effort to stem the supply of homes coming on the market as this is applying downward pressure on home prices. Yes of course availability of credit to credit worthy buyers is needed, but, the huge supply of homes on the market can’t be sopped up by a few new buyers, but rather an immediate halt to forcing home owners out of their foreclosed homes needs to be implemented. Home foreclosures of late 2007 and into the new year may total over 3 million and more. This is not to say that banks “can’t” foreclose on homes, but rather, evicting the homeowners should be halted, while given new soft terms on a temporary basis. This adds two much needed and valuable elements, first, it keeps millions of loans off the non-performing loans list and second keeps millions of people in their homes. In this case, you keep families intact, neighborhoods kept up since they are not blighted by dozens of unoccupied homes, it gives an incentive to home owners to abide by the new softer terms until they can comply later with the former note terms and keep the home out of final foreclosure, it keeps most importantly- millions of homes not only off of the home market- but these homes would otherwise be auctioned and dumped at very low prices- depressing the housing market even further by leaps and bounds. Some may say this is rewarding people’s bad economic decisions- yes it is- ! but America’s economic and financial system is not cut and dry, it’s not black and white. When you have a foreclosure rate of 0.5-1.2% it does not affect your overall home price index nor the solvency of banks, but when, for whatever reason, foreclosures begin to climb over 3% and could head to 5% or more- then- you get a collapse in the market which leads to financial banking disaster. In this case, there isn’t much choice but to take the measures needed to prevent a financial and banking meltdown.