We in America are experiencing a very depressed economy as a result of mismanagement of our credit markets. This has started a domino effect that has spread throughout the business world. I have stated in the past that in order to get markets and business back on track we need to address the issue of the excess inventory in housing and this I still believe.
Banks have now got to the point where they are refusing to loan money. I and many others have been under the impression that the reason banks were not lending money was that they did not have the money to loan. I no longer believe this to be the case. The Feds have lowered the discount rate to levels that have not been available for decades and the treasury has made a lot of capital available. We need an answer to this problem before business can again start providing goods and services. I do not believe in big government but there are times that their power should be used for the good of all. If the banks do not want to do the job that the business world needs to survive we may need to put them into a situation where they either perform or be nationalized.
Our government has invested a great deal of money in Freddie Mac and Fannie May and I believe that this investment should give us the ability to shape policy. We are essentially guarantying all the loans under these two entities. I suggest that this position be used to dictate that the interest rate on a Thirty Year Fixed rate FHA mortgage at 4%. This would calculate a monthly payment on a $200,000 mortgage to be $955; an affordable payment for most households. I also suggest that second home buyers and investors be offered the same rate but have to put down a minimum of 10%. This will bring buyers back into the market and absorb the inventory of homes in most parts of the country.
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