Government Options for Tackling Foreclosure Crisis Shrinking
Although there are still some tools left, slowly the government options for tackling the foreclosure crisis are shrinking. One needs to hunt inside the tool bag of Uncle Sam to find out what is left.
The markets were not much impressed with the $700 billion bailout package that popped out of the bag. On Thursday stocks again dropped.
Even at the eleventh hour the government can plug the holes of the sinking ship by buying foreclosed units and making loans directly to those who want to buy houses. It will make availability of credit easy and improve the economic health of the nation. It will necessitate the taking over of private companies but this is abhorrent to the basic American psyche – especially the conservatives. The policy makers are advising patience from their ivory towers as the ordinary man in the street struggles to survive without the umbrella of housing shelter.
The main tool in the hands of the Feds for containing the foreclosure crisis, are lowering of the interest and allowing free flow of cash. It has experimented with both methods. Further lowering of interest could be and most probably will be done if the trend continues to be bad. But after another half percentage cut there is nothing else the government can really do. Within a year from September 2007, the government has brought down the interest from 5.25% to 1.5%. America could learn a lesson by taking a page out of Japan’s experiments of keeping rates at near zero levels for a year without getting any results.
When Alan Greenspan had been at the helm he had kept interest rates at 1% for one whole year sometime earlier in this decade. Many blame him and his measure for the raging foreclosure crisis of today.
The Fed could flush the market with cash but that has already been done without making a dent. The pumping in of $700 billion will take some time. It will be weeks before the soured mortgages will be bought.
The treasury is now mulling over the idea of taking over partially some banks in USA. It will place the government into the untenable position of being regulators of the same banks in which it is an investor. The pundits opine that the government has so far been groping in the dark and not hitting the core of the problem but only concentrating on the trimmings.
