The housing meltdown is one of the biggest crises to hit the United States since the dot com bust of 2000-2001. In fact, this one may be worse.
The dot com meltdown was largely due to the fact that stat-up companies were popping up too fast without good business models. They’d raise millions of dollars from an IPO but have no idea how to actually make money. The meltdown caused them to sit down and rethink their businesses. There were bankruptcies, mergers, acquisitions, and when the dust settled the industry was stronger.
The housing meltdown is a whole other animal. The problem is the result of many bad circumstances coming together at just the wrong time. It’s a problem that feeds on itself. As the market gets, recovery seems further and further away.
The meltdown was caused first and foremost by bad loans. This can be blamed mostly on shady banks and loaning processes, and partially on people signing up for loans they didn’t fully understand. While an ARM might make sense for some, people didn’t realize that after a few years their mortgages could double, or worse. Of course, no good Samaritan at the loaning institution was going to explain this.
As well, greedy builders got way too far ahead of themselves. Too many houses and condos popped up with not enough buyers to fill them. In the end, as prices fell, people found themselves in an absolutely horrible situation: their mortgage just went way up, but their home is no longer worth what they paid for it. This was, and is, a nightmare scenario for the housing market.
Now, to the question of whether the government should bail out struggling homeowners. I think, in some cases, yes. It’s not unlike unemployment benefits. When people are down on their luck, they should be able to count on their government to help lift them back up and get them on their feet again. Certainly, the aide should come with some limitations, and not everyone being foreclosed on should qualify. The benefit should be reserved for the most needy and desperate.
Beyond a government bailout, though, there is something that Washington can do to help the struggling housing market. Interest need to come down. This was the only thing that saved the country from recession after the dot com bust. The same applies to this crisis. There are buyers out there, they are just waiting on the sidelines for the housing dust to settle. If the Federal Reserve can entice them back into the game, home prices should begin to rise again. Once that happens, the economy will start to take a turn for the better.