The following is a video of CNBC’s Rick Santelli ranting about the new housing bailout program. Although I’m not a homeowner, I have to say I agree with what he says. Artificially inflating housing prices will hurt Gen Yers when it comes time to buy homes of our own.
i watched this yesterday, and correct me if I am wrong, but doesn’t he track Mercantile exchanges in Chicago? With that being the case, why on earth would CNBC ask for his opinion on a completely unrelated matter.
And as far as his argument of “hey they can’t afford the house so let them default and lose it”. That doesn’t really make sense, the bank ends up with more foreclosures and we end up adding to the supply of already vacant houses that aren’t selling. I think part of the housing plan is to restructure people mortagages down to the appraised value of the house now, so the bank can keep the cash flow coming in. Other parts say reducing the interest percentage for a period of say 5 years, thinking the market will rebound by then. Something has to be done in my opinion, other wise it gets way worse before better.
I also think he grossly over simplifies the situation. I’m not a homeowner myself (thank god) but when we have a wave of mass foreclosures and tons of vacant, decaying property laying around, that’s going to negatively affect our property values. That in turn is also less property tax the state/local governments collect, so schools have less money, government services wind up getting cut and the area can’t attract new people because of poor quality of life.
I’m not happy about the fact that people didn’t make wise decisions (of course predatory lending practices and a completely unregulated system of mortgage backed securities don’t help), but I think the alternative of people being forced out of their homes and moving into shanty towns isn’t a good one either.
If the banks learn their lesson (we can hope), only real credit-worthy individuals will get mortgages from now on, cutting down the demand for housing in the future, and will normalize housing costs with the glut of available homes leftover from the building frenzy in the early-mid 2000s.
Santelli actually does work on the Chicago Board of Trade. He’s pretty much an expert on interest rates, FOREX and anything that has to do with The Fed and their policies. I’d say he’s just as qualified as anyone else to comment on this, he’s been around a long time.
As far as his rant goes, I agree that he simplifies the situation into a moral argument between what he feels is right vs wrong. Realistically speaking, keeping people in their homes and preventing foreclosures will help to lessen the supply of homes on the market and help to buffer price declines.
That being said, the problem I have with the plan is that it’s basically trying to manipulate the prices of homes. We’d be artificially boosting the price of homes vs. their underlying value. Home prices need to come back inline with median incomes. Homes aren’t selling right now because prices are too high. The government may be able to temporarily buffer the price decline with this plan but eventually home prices are going to return to equalibrium with incomes and general demand.
In the end we’re going to have to take our lumps and it’s going to be painful. Unfortunately, there’s no quick fix for a problem that took years to develop, and I’d rather face reality now and get it over with than sweep the problem under the rug and try to keep home prices artificially high.
http://www.thedailyshow.com/video/index.jhtml?videoId=220252&title=cnbc-gives-financial-advice
puts cnbc and santeli in its place haha