How The Government Can Prevent The Housing Crisis From Causing A Global Depression

There is usually little to be gained by attempting to find someone to blame when a calamity such as the current housing crisis occurs. Even if one were to determine exactly what was done wrong, there is little chance that by the time another such crisis is about to occur, that such a determination will be remembered or have any value.

Indeed, what may be about to cause the world’s next depression, is quite unlike what caused the depression of the 1920s.Get more details about¬†¬†

However, if the depression that is already occurring in the California housing market can be prevented from spreading to the general economic market and to the rest of the world, an analysis can be useful if it shows what might be utilized to prevent matters from becoming worse.

First, everyone knows that much of the cause of the current housing crisis, liquidity crisis and sub-prime mess that we are in that is causing Desert Area MLS, Palm Springs real estate sales and prices to plummet, financial institutions to write down billions and which is now causing a general slowdown in the rest of the economies of the world, can be laid to rest at the feet of unwise and improper lending practices. Fixing those lending practices, while useful for the future, won’t prevent this recession from turning into a depression or some other unwise practices from causing a different depression far off into the future.

Who could have prevented such lending practices from causing this economic mess that we find ourselves in? Certainly, a number of entities, from the Federal Government, to State Governments, to Departments of Real Estate in the various states, to regulatory agencies overseeing mortgage lenders, to the banks and lenders themselves and the financial institutions and brokerages who foolishly invested in sub-prime investments themselves.

But as this article is being written this 21st day of January, 2008, stock markets from Asia, to Europe, from China to Latin America and Canada have fallen overnight from 5% to 8% and the U.S. stock market is expect to open on the Tuesday following the Martin Luther King holiday over 500 points below where the Dow closed before the three-day weekend began.

So what is causing the world’s stock markets to tumble. Fear, of course. In this case, the investors fear that the President’s stimulus plan to jump start the U.S. economy will be too little, too late to do anything to prevent a recession. And if the U.S. market goes into a recession, the argument follows, the world’s markets may follow suit.

So if a stimulus plan to put $400 to as much as $1,600 into the hands of most or all U.S. taxpayers will not prevent a recession, what will. The Federal Reserve has as much as already guaranteed that they will reduce the federal funds rate by 50 basis points, but in the week since they made this clear, the market has fallen every day in the U.S.

Some have suggested an unprecedented and immediate lowering of the federal funds rate by 100 basis points. Still, the federal reserve has appeared reluctant to move in such dramatic steps, preferring not to either look panicked or use up one of the few remaining items up it’s sleeve, the federal funds rate and the federal discount rate. Because, once the federal reserve takes its rates down that fast, there won’t be much if anything left in the aspirin bottle, and according to some economists, such moves could make matters worse. Others have argued that the federal government should take over the bond insurers themselves. While that might put out that fire and prevent their situation from harming the market further, the markets around the world still seem headed down with their ships taking on so much water so quickly.

Many are saying that the federal reserve and the federal government are behind the curve. That they are simply reacting and reacting too late, rather than being ahead of the curve and taking steps that will prevent the problems in the financial markets from becoming worse.

Clearly, the federal reserve is acting to put out some pretty nasty fires. Just when you thought the banks and other financial institutions were in enough of a predicament, and that some were just escaping bankruptcy by vast infusions of money from the sovereign funds of other foreign countries, now the risk of bankruptcies or credit rating deterioration of the bond insurers is causing a whole new set of problems.

It may be time for the federal reserve and the federal government to act now as if this country is already in a depression, before it is and solving that mess becomes a bigger problem. One bold solution would be to create a massive jobs and public works program much like was done after the depression of the 1920’s.. This country’s bridges, roads and the rest of its infrastructure is in dire need of repair. So fix the infrastructure and put the country to work doing it.

With so many contractors and laborers who were previously employed in the construction industry out of work, put them to work as well as millions of others in renewing and replacing this country’s infrastructure. Determine how many billions or trillions of dollars it will take to solve one of this country’s biggest problems and solve it by preventing a depression before one takes effect. If we need some money for the project, then by Executive Order or by act of Congress, roll back all of the pork projects Congress has voted for in the last eight years alone, and we may have money to spare. If that’s not enough, pull our troops out of harm’s way. If that’s not enough, stop using tax money to pay for election advertisements. If that’s not enough, get rid of some government agencies once and for all. Because if we don’t stop this spending taxpayer money on pork projects instead of fixing what’s wrong in this country, a lot more things may go wrong. As some would remind us, as bad as things get, they can always get worse.

As a postscript, the federal reserve lowered both the federal funds rate and the discount rate by 75 basis points on January 22nd, but the Dow still fell 128 points, the Nasdaq 47 points and the S & P fell 14 points.

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