In the midst of all of the economic bad news, and the mad dash to intervene throughout the capital markets, there is at least some hint of good news. The beauty and flexiblity of a market economy rather than a command economy, is that markets tend to adjust themselves. When things get too expensive, people stop buying and the price comes down. Price drops far enough, and people start buying again. Although regulation is certainly necessary to soften short term pain or to cover certain kinds of bad behaviours within a market, in general terms, markets will always tend to move to correct themselves.
As 2008 comes to an end, we are starting to see corrections in the Home Loan Mortgage Lending market. Over the last weeks of November Fed actions to bring interest rates down as low as 5.5% on 30 year home loans combined with a 15 to 20 percent drop in the average cost of housing have worked to bring affordablity of housing way up. Read more about it here at FoxNews.
The Federal government expanded its bailout deeper into the consumer and mortgage credit markets. In the past few weeks efforts have focused on capital infusion and solvency. The government has made direct investments into banks- essentially handing them money – so that they would have some operating capital. Now the financial bailout programs are turning to liquidity in the consumer lending market. The effect was felt immediately as home mortgage rates dropped sharply yesterday when the government announced that it will use another 800 billion dollars to buy up consumer debt and mortgages to remove them from the balance sheets of commercial and mortgage lenders. Together with the direct infusion of capital it should loosen up the flow of credit to consumers and businesses. Hopefully this will free up additional