No Runny Eggs

Yes, you read that correctly.   It’s entirely possible that there is another housing bubble coming.

Francis Cianfrocca tries to figure out what exactly the latest, no details included, proposal from President Obama means.

Yesterday, President Obama rolled out “a plan” to help homeowners who are behind on their payments.   Cianfrocca believes based on:

uniformly-enthusiastic reactions of banking-industry executives and spokesmen,

Cianfrocca believes that the $75 billion in Obama’s plan leads directly back to the banks/mortgage holders.

Cianfrocca believes the plan will work as such:

I think the proposal is intended to directly supplement mortgage payments for millions of people (using the 31%-of-pretax-income benchmark for mortgage affordability). There are reports that the plan will somehow facilitate refinancings at lower interest rates, which is somewhat similar in effect. If I’m right, this is effectively the same as reducing people’s mortgage payments (but not their mortgage principal amounts) to a level that reflects current market reality.

Great!   We’ve solved all the housing problems for the low, low price of $75 billion dollars!   Now that we’ve fixed it and we’ve learned from our past, all will be right as rain from here on out!

Um, no:

If the program proves popular, however, look for it to expand. And if that happens, look for the fortunes of the homebuilding industry to recover.

This sounds good, but it’s very evil. We have far too much housing already in this country, the residue of the last housing bubble. If we get another one now due to government deliberately overvaluing mortgages, we’ve set the stage for yet another nasty crash in some future year.

Just one more example where President Obama appears to “Hope” there will be “Change” that will be different than the most likely outcome of his plans.