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Wednesday, September 8, 2010

Burn, baby, burn

I continue to be amazed that people believe they can prevent failure. In today’s fluffy “you’re all equally amazing people” world, the powers that be have struggled to prevent anyone from failing and in doing so drag us all down together. (Maybe we are not failures as long as we are all equally pitiful).

Looks like even the New York Times is starting to come around to realizing that you cannot prop up the housing market indefinitely.

Some economists and analysts are now urging a dose of shock therapy that would greatly shift the benefits to future homeowners: Let the housing market crash.

When prices are lower, these experts argue, buyers will pour in, creating the elusive stability the government has spent billions upon billions trying to achieve.

Now urging? I’m sure I’ve heard that before now. But in any event it definitely would shift the benefit to future homeowners. That’s what happens in a correction. All the existing owners realize they have made a poor investment and try to sell. In doing so, it creates opportunity for new investors to bail them out. Although, in this case “bail out” does not mean totally relieve them of their suffering. It means partially relieve them by offering them more than zero which is better than nothing. The stability comes, but at the new price level.

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