America's Failed Economy (?)

Let me preface this post by saying that I am an Economist by NO means. I have a rudimentary understanding of advanced market studies on economy... but I do understand economic principles, and am currently enrolled in a Leadership Program which teaches the capitalist economy.

With that said, I have to restate my blog title: America's Economy has Failed

President Bush's relief plan is the next sign of the failing times.

A year ago, I moved away from California, mainly due to work reasons, but also on the burner were the reasons of overcrowding and real estate prices. a 500 sqft shack in the worst part of San Jose was being sold for $500,000... That is right. I stated at the time that there was no way that the market could survive when the middle class could not even afford housing.

Moving to Colorado, where the foreclosure rates were pretty much leading the nation until recently, I was excited to find affordable housing... and when I talked to the banker regarding home loans, I was sure to specifically request a 30yr fixed. Why? Not because the rates were great, but because I knew that a few years down the road, if I had an adjustable, that I would be out on the street with a LOT of other Coloradans.

Now, the Federal govt. is freezing the rates all together. So in a sense, it is a bad time to be a banker. The federal govt. is dictating who they have to do business with and at what price... Anybody see any resemblance to Ayn Rand's Atlas Shrugged?

The president says that he is bailing out the citizens... what is really happening is that he is bailing out the bankers. Though the citizens will initially lose their houses, the banks will be left with useless real estate, which they will have to unload at a lower price (market correcting itself), and the banks will take the loss. Then, the $500,000 houses will be back on the market for the $150,000 that it is worth, and the citizens can afford a lower mortgage at a higher rate, the banks make their money back over time... everyone is happy in the long run, and the free market works...

The problem is that the rate freeze will help people keep houses that they cannot afford, house prices will remain high, and at the end of the five year freeze there is going to be an economic implosion. Banks retain their wealth, the people continue to barely make their high mortgage payments, and the economy stagnates.

This, as a free market guy, is wrong on so many levels... so many, in fact, that I am still learning the impacts in my class.

Any opinions?