Obama’s weekly address deserves some attention. My comments follow below the transcript:
Hi, everybody. In recent weeks, you might have noticed something. Or maybe even heard the sound of it if you live close enough.
New homes are going up. In fact, construction workers are breaking ground on new homes in America at the fastest pace in more than four years.
At the same time, more homes are being sold. Home values are back on the rise. And foreclosure filings are at their lowest point in the five years since the housing bubble burst and left millions of responsible families holding the bag.
Now, we’re not where we need to be yet. Too many homes are still underwater. Too many families are still having a hard time making the mortgage on their piece of the American Dream.
But one of the heaviest drags on our recovery is getting lighter. Now we have to build on the progress we’ve made, and keep moving forward.
I never believed that the best way to deal with the housing market was to just sit back, do nothing, and simply wait for things to hit bottom. That would have been a disaster for all the responsible families who – through no fault of their own – were struggling to make ends meet.
Instead, I’ve made helping those homeowners a priority.
Since I took office, my Administration has taken action to help millions of families stay in their homes.
We teamed up with attorneys general in almost every state to investigate and crack down on the practices that caused this mess. And in the end, we secured a $25 billion settlement from the biggest banks – one of the biggest settlements in history – and used it to provide relief to families all across America.
We’ve taken action to help responsible homeowners refinance their mortgages. As a result, just this year hundreds of thousands of Americans who were stuck in high-interest loans have been able to take advantage of historically low rates and are saving thousands of dollars every year.
And now I want every homeowner in America to have that chance. I just wish it didn’t require an act of Congress. But it does. So, back in February, I sent Congress a plan to give every responsible homeowner the chance to save about $3,000 a year on their mortgage by refinancing at historically low rates. That’s the equivalent of a $3,000 tax cut.
It’s a plan that we know will work. It has the support of independent, nonpartisan economists and leaders across the housing industry. It’s a no-brainer that should have passed easily.
But Republicans in Congress banded together and kept this plan from even coming to a vote.
They banded together and prevented millions of Americans – including many of you listening today – from saving $3,000 a year. That’s money that could have gone back into the value of your home, or your kid’s college savings account. That’s money that could have gone into your local businesses, so they could hire and create more jobs in your town.
But Republicans in Congress still won’t let that happen. And that’s only held back the economy, when we should be doing everything we can to accelerate our economic engine.
Let’s be honest – Republicans in Congress won’t act on this plan before the election. But maybe they’ll come to their senses afterward if you give them a push. So contact your Representative, especially if this plan will help you or someone you know. Tell him or her that American homeowners have waited long enough. Tell them that it’s time for Congress to stop standing in the way of our recovery and to start standing up for you. Thanks and have a great weekend.
Okay, now let’s translate that. What is Obama actually saying? He is saying that the government had to intervene to prevent a market correction in home prices following the bursting of the housing bubble by doing more of the same that caused the housing bubble in the first place, with the Federal Reserve inflating to keep interest rates down, including by monetizing mortgage-backed securities (and thus serving the dual purpose of an further stealth bailout of Freddie Mac and Fannie Mae), and a continued government policy of encouraging homeownership. These policies are successfully reinflating the housing bubble, but there is still more work to do to really blow up the housing sector again.
Now, Obama doesn’t recognize that that is what he is saying, because he is completely clueless about the actual causes of the housing bubble. This is evident when he states that he has acted to “crack down on the practices that caused this mess”. No, he hasn’t. What about that $25 billion settlement? What did it do to address the causes of the housing bubble and the financial crisis it precipitated? Nothing. It is a treatment of the symptoms, not the underlying disease. He says, “It’s a plan that we know will work.” Sure, we know it will work since it obviously worked out so well the first time. That really is a “no-brainer”, because you’d have to have no brain to think that doing more of what caused the problem can also be the solution for it.
Then look at what he says about “refinancing at historically low rates”, which is precisely what people were doing during the housing bubble because the Fed had cut rates to historical lows in order to prevent the market correction from the bursting of the dot-com bubble. As Paul Krugman has put it, “A snarky but accurate description of monetary policy over the past five years is that the Federal Reserve successfully replaced the technology bubble with a housing bubble.” Part of that was how the Fed’s policy encouraged refinancing. “Millions of Americans have decided that low interest rates offer a good opportunity to refinance their homes or buy new ones”, Krugman also observed, with regard to the Fed’s response to the collapse of the dot-com bubble in 2001. “Repeated interest rate cuts encouraged families to buy new houses and refinance their mortgages”, he declared in 2002. (See my book, Ron Paul vs. Paul Krugman: Austrian vs. Keynesian economics in the financial crisis.) Fed Chairman Alan Greenspan even encouraged people to take out adjustable-rate mortgages at their low introductory rates. And we all know how well that all worked out the first time. It’s a “no-brainer” that we should just do the same thing all over again.
Too bad those silly Republicans haven’t “come to their senses” yet and aren’t completely on board with this brilliant plan for economic recovery.