Jeff Alworth got a piece on the mortgage bubble printed in The Oregonion title "Taking a spin on the housing carousel."

The piece is being discussed here at BlueOregon: Riding the Housing Bubble.

My comment to them goes like this:

If you get cheap money to buy an overpriced home and then your lender fails and falls into the hands of government entity like the Resolution Trust Corporation you can look forward to the possibility that the government itself could obtain a deficiency judgment between the amount of debt and the fire-sale price at auction. You get to then have that judgment offset against your Social Security, if need be. State slaves come in many forms, and this is just one variant.

Do not think that you can just give up the house, and move on, if the market does not go up or think that all that you risk is a credit rating hit?

Here is some food for thought: Assume that mortgage loans were at ten percent interest and had a maximum ten year pay off period. Assume further that federal programs, those designed to aid the packaging of mortgages for the secondary lender market, included only mortgages up to three times the median private sector wage; perhaps 120,000 dollars. Assume further that the Consumer Price Index, excluding housing costs, was 3 percent. Where would the price of homes reach an equilibrium? The price would surely be much lower than today.

There are economists within the Federal Reserve who have concluded that the vast bulk of the benefits from federal Government Sponsored Enterprises like Fannie Mae and Freddy Mac largely go to the big lenders and not to the persons obtaining the loans, and have written reports in support of that position.

Jeff's piece does raise the important issue of the high prices of homes, and some key factors to consider, but the role of government involvement in housing is far more diverse than those few factors. I have argued that the folks at Affordable Housing Now and similar entities that focus on interest-only assistance or rental assistance are way off the mark when trying to address the core problems with housing. The collective interests of brokers (real estate and mortgage) and appraisers and various other beneficiaries of high transaction costs are all in favor of rising prices.

One lesson from the S&L bailout was the Federal Reserve and Congress will go to extra ordinary lengths to save financial institutions from the risk of holding mortgage documents, which is just a personal promise to pay money, backed by real estate. Your view of the real estate market will be greatly enhanced if you take a hard look at just the pile of papers called mortgages, quite apart from the so-called security, and view the equilibrium point as the carrying capacity of the so-called owners (from a macro economic aggregated perspective) to endure the burden of debt. The role of real property in this scheme is irrelevant except to the extent that laws can be crafted to apply only to such property, in conjunction with a larger plan by the big lenders and bankers who's focus is really only on the pile of papers.

The price of homes is just a function of the perpetuation of the lending institutions continued lending activity. We are just glorified renters, really, with illusions of "ownership." You own your home only if a banker has no claim on the property by virtue of a mortgage, until then you are just a debtor. The folks who think there is a real market when 90 percent of the sales are heavily financed through debt are not economists, they just day-to-day peddlers singing to a tune set by someone else.

The banker's game is it to extract one third of your income, and they do so by making you believe that you are the owner of your mortgaged home, and by setting up mechanisms and incentives to help the banker to always get their returns regardless of the variability of the price of homes. The price of a home is that which will enable the banker to extract one third of income, from owner and renter alike. All other variations are just secondary concerns.