Most members of Congress are whores of the housing industry -- and their own investments. Candid interviews have revealed that in private discussions on whether to the maintain housing interest deductibility -- most representatives and senators quickly do a calc in their head to see how much it will hurt them personally. A clear conflict of interest.
In the current debate on the financial crises, few if anyone is talking about -- as part of the solution -- letting housing prices fall to levels consistent with its underlying fundamentals -- that is, the ratio of income to mortgage costs (affordability) and monthly total homeowner costs to rents. Its hard to imagine that John McCain does not think about the value of his 13 homes when considering solution paths to the current financial crises. As most in Congress are doing -- thinking about the value of their own inflated homes -- and supporting policies that will support the inflated prices of their homes. A clear conflict of interest. Some have argued that to solve the current financial crisis the gov't should ease credit to reduce mortgage interest rates. This is pandering, self-serving economic policy. Low interest rates have been the root of the crisis: a massive lowering of interest rates and infusion of excess money into the financial system. The result was not a mystery -- strong inflation in the housing sector, a drastic overpricing of housing relative to fundamentals, an over-investment in housing stock, and worst -- locking millions out of the housing market -- mostly "have-nots" -- young, first time buyers. A path to cultivating health in the housing and financial markets is not to repeat the cause of the crisis by lowering rates again. The solution will include letting housing prices re-align with the fundamentals (income, rents and mortgage costs) -- and opening the housing market to millions -- currently shut out by policies that created and are sustaining massively mis-priced housing assets.
