another recession. We are not forecasting anything so dire, but let’s consider a few ways in which misplaced priorities have had a negative impact on the economy.
Inability to Address Housing and Banking Policy We all understand that a foreclosure is tough on those being forced to move. Yet despite all of the posturing and finger‐pointing, the reality remains that most foreclosures take place because the borrower can’t pay back the loan. The collateralized lending system that is the backbone of the modern financial system requires that under such a circumstance the asset (the home) is to be taken over by the lender. While abuses of the system should not be tolerated, the fundamental process needs to be respected. Of course, many of the bad loans occurred because credit standards had collapsed, allowing potential homeowners to receive loans for amounts above and beyond their ability to repay. During this time, homes sold for excessively high prices in a speculative frenzy. Ultimately, lenders and borrowers were both to blame. As for the so‐called spillover effect – where foreclosures cause home prices to fall leading to more foreclosures and so on, it doesn’t persist indefinitely – particularly in a world where new investors have been aggressive in buying distressed properties. Indeed the markets with quick and efficient foreclosure systems (such as California and Arizona) are past the crisis, while those with slower systems (such as Florida, New Jersey, and Nevada) are still dealing with a huge number of distressed properties. The right wing in Congress has pushed back ferociously against any new regulations for the banking system, despite clear and growing evidence of the transgressions that played a fundamental role in the broader financial meltdown (and, in some cases, continue to go on). As such, the Dodd‐Frank Act that was supposed to fix the financial system is still largely incomplete. This void is leaving many banks in a state of regulatory uncertainty, which is often worse than having either a good rule or a bad rule in place. Instead, the entire process is stuck in limbo due to the congressional stalemate. What should have been done? A clear set of new regulations that don’t demonize either side ‐ but acknowledge lapses by both lenders and borrowers ‐ is needed to prevent such problems in the lending markets in the future. Instead of trying to stop foreclosures, it would have been better to hasten them, while giving assistance to those residents who were pushed out to help them find new housing and
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