Filed under: Economic data, Housing, Recession
The proposition that housing drives the economy is a pretty old and well-articulated theory. Housing values underlie the value of many of the mortgage-related paper held by financial firms. Falling home values have undermined consumer access to credit and people have been pushed out on the streets due to foreclosures.
Some economists say that there are hopeful signs housing will begin to recover. The extra liquidity that the Treasury is putting into banks will improve mortgage lending. That theory is actually deeply flawed. Paulson can give the banks money, but he can’t force them to lend it. Big financial firms are just as likely, if not more likely, to keep the cash to use against future losses. Those losses may come due to mortgage problems. It is a perverse circle which might not be broken soon.
Continue reading Nothing moves without housing and housing isn’t moving
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