Analysis of the Housing Crisis

INTRODUCTION As stated in previous posts, the housing crisis is an issue that is extremely relevant to the American public today. While this blog mainly focuses on the issue of housing with respect to mortgages, foreclosures, and real estate, the actual subject at hand is one that is interdisciplinary with other topics that are relevant to all people in today's time. Not only does the housing crisis apply to the failures of banks, unemployment and the loss of jobs, and the depreciation in the value of stocks and bonds. It also led up to the hyperinflation of the American economy which transitively affected the world economy. However, regardless of how the issue of housing relates to every individual in the world, what is more relevant is how the issue can be resolved, or at least improved upon. There are many different ideas on how this situation can be resolved. However, before understanding these propositions, the different schools of thought on the housing crisis should be examined first. 
 

THE OPTIMISTS- THE WORST IS OVER There are so many different ideas and theories on how the housing situation in America can be improved upon. Many people ask and believe, what is the problem exactly? Some optimistic financial firms have taken a "worst is over" stance in believing that the hard times are over and that the economy is stabilizing itself, which is also stabilizing the housing market, albeit at a slow and gradual rate. These optimists looked at the previously continuous downward slope of building permits and housing starts and noticed a small growth in their numbers. 

THE OTHER OPTIMISTS There are also people on the same side of these optimists but with a different take on the situation, most notably, Todd Zywicki, a Professor of Law at George Mason University School of Law. Well known for his opinions on the situation, Zywicki believes that the housing crisis is not all that it has been reported to be by the media. His theory concludes that the "housing crisis" is merely a natural part of the cycle of real estate in general. While he does recognize the economic disparity of the housing bubble, Zywicki doesn't find the current economic situation to be one of "any tragedy." His support behind this conclusion is that there are three types of housing markets and only one of them is being truly affected by the housing bubble. In this type of housing market, Zywicki observed over speculation of the demand for houses in areas such as Miami, Las Vegas, and Tampa which led to the creation of a bubble as "prices moved up and speculators moved in." Because of this bubble, he suggests that the government should limit their interactions and involvement in the crisis and just let the market naturally take its course. This idea is what can be seen as a laissez-faire government reaction to the housing crisis.

THE LAISSEZ-FAIRE APPROACH Without going into detail about the fundamental principles of economics, the term laissez-faire basically refers to hands free government involvement in the economy. Another way to understand laissez-faire is understanding its antonym, command economy, which is when the government literally controls the economy. The ideas of laissez-faire boil down to the simple idea that the government should allow markets to naturally take its course because everything will balance out in the end. Transitively, certain optimist financial firms and theorists like Zywicki believe that the worst of the housing crisis is over and that in order for the economic crisis to improve, the government must involve itself as little as possible. 

MORE WORK AND NO PLAY On the other end of the spectrum of what should be done about the crisis are those that believe government should take a stronger hand on the issue. There are a fewer number of people that think the government should have a stronger hand in the issue. The majority of these people formulated this opinion more early on in the housing crisis. Unfortunately, because this has been an issue for many years now, those voices of intervention have been heard and in 2009, Congress issued a bailout to Fannie Mae and Freddie Mac in order to help them out of their downward spiral. This bailout was the answer to many people's prayers. The government firms Fannie Mae and Freddie MacDemocrats as well as many whose house payments were on default. However, since the bailout, the opinion of many that once stood on the side of government intervention in the economy, especially the housing market, have "changed sides." would be safe from the deep hole of which they were falling dramatically deeper and deeper in. This drastic measure that was taken is a prime example of government intervention in the economy, also considered the opposite of laissez-faire. 

THE GOVERNMENT RIGHT NOW The current administration doesn't fall too far from the laissez-faire tree of thought. Recent White House conferences have shed some light on the Obama administration's plan to back off a little with it's hand on the economy. While top officials are considering reducing their involvement in the housing situation, there are some key roles that the government are still not going to back down from such as insuring new home loans. "The Cabinet secretaries, who are leading the housing overhaul effort, said they envision a hybrid system that relies far more on private companies to provide funding for home loans but still features a government backstop for those loans." In other words, the government wants to let the natural laws of economics freely come into play, but at the same they also want to give some security to the firms and financial houses that want to "play freely."

AND LASTLY Through all of the different arguments and opinions on the housing crisis, there many points of which all sides can agree on. Something needs to be done. The home, jobs, and security of many Americans are and have been at stake as a result of this crisis have gone to undeniable highs. However, the two sides of this argument prove a hard line for Americans to straddle. Either time needs to go one for the housing market to get back to normal, according to the laissez-faire school of thought, or government needs to intervene even more in the affairs of the housing market. However, is it worth it to wait? Jobs and houses are lost daily. But on the other hand, would government intervention be successful or even constitutional? As the midterm elections are coming around the corner, it is your job to make a decision on how you want the situation to play out. The future of the housing market is in your hands.