During 2005 and 2006, I wrote economic diaries because I became convinced that what was then called the "housing slump" would indeed balloon into an unmanageable problem.
In my research I was guided by bloggers such as Michael Shedlock, the Minyans, several prominent "housing bubble" blogs, and my own observations about the relationship between government and capital construction projects.
There was no way to foresee the current proposed "solution". But the shape of the political problem now appears to be, quite simply, twofold - to get Republicans out of control, and then to get back the power that Bushies gave the financial sector and their BFFs in it.
This diary will not be long compared to most of mine. I would like to say for the record that I have supported Obama since November 2006 on this blog, and I took considerable heat for it at one time. I'm a contributor and a volunteer.
In the bailout, the US government will be acquiring real estate of several kinds, residential and commercial. Not all the mortgage debt involved is really "toxic". Accounting rules, mutual fund rules, pension fund rules and a stampede mentality (including aggressive shorting) have forced over-leveraged banks into untenable positions.
But as long as the "Resolution Trust" in this instance can cherry-pick to some extent what it will take - as long as the US drives a very hard bargain, capping executive compensation and taking all the equity it can get, the deal could not only be a good one. It could destroy the Grover Norquists of this world who want government to be weaker than business.
I don't currently see any provision for piece-by-piece haggling over what the US will acquire. That's indispensable, because the resultant Federal entity will be in charge - I hope - NOT just of the "liquidation" of the acquisitions, but of their DISPOSITION.
Very simply, there is a housing crisis still because people need housing. The government could be in a position to distribute it in the manner of a lender or micro-lender.
There's a significant amount of commercial real estate that will be part of the bailout. It might be a little tricky converting strip malls into community centers - but that's part of the challenge.
Everybody wants homeowner protection included in the package. But we can't give free houses to people who are broke. People have been talking about how the bailout robs the taxpayer, drives down the dollar and makes imported goods more expensive (because the only thing the government can do in order to get this $700 billion is print it, thus diluting the dollar). People who have the money to buy a home will now wait until prices bottom. In the meantime, one of the little-discussed roots of the original housing crisis can be addressed: the poor condition of many houses. I don't see a problem with the "bailout agency" working with the other Federal housing agencies to get people into houses that they promise to fix up. Some people will never be able to do such jobs, and if the government acquires all this real estate, we could use part of it to address problems of homelessness, and the need for public and temporary housing.
You can go into details all day and night, but the point is that the financial sector literally sold America short. I don't think the Chinese at this point even want to come over here and cash in their Fannie Mae bonds by acquiring American property. We have a market in which there are no more cheerleaders for America.
That means the government should be able to get yard-sale prices here.
Obama can keep his powder dry on this issue. I would prefer that we slow things down a little. I don't want the election to be about this because we aren't getting time to think it through. Obama's statement about the Wall Street crisis and bailout was adequate for the time being.
This could be where the drowned-in-the-bathtub government comes back to life, and gets bigger and stronger, and earns the respect of the people. There are great risks either way, but this is a chance to break the undeserved prestige of the financial sector, and gradually return to a less leveraged financial sector.
It could be a great time to buy America - buy it back - redeem it. And give it back to its people. It seems clear to me now that we were never going to be able to do this without changing the status quo, in which the government was looked down on by Republicans and financiers. Sometimes the government needs to be smaller - and sometimes it needs to be bigger. It has to adapt to the problem at hand. Let Wall Street surrender part of its power, and never again think that the elected government and its regulations can be ignored or brushed aside.