Paulson: Let housing prices fall

Important speech from the Treasury Secretary (pictured) today: "Housing prices need to fall further to permit shell-shocked housing markets to stabilize and policy-makers should not interfere with that process, Treasury Secretary Henry Paulson said on Wednesday."

More from Reuters via LATimes.com: Treasury Secretary Henry Paulson "... said regulators including the Federal Reserve were 'vigilant' and doing everything they could to minimize damage to the economy but played down the value of a more direct government role."

The entire speech is here:, but I've taken the liberty of cutting and pasting the section in which Paulson addresses housing prices:

"The housing downturn and the surrounding uncertainty are significantly impacting our financial institutions and capital markets. However, we should not lose sight of the fact that this downturn was precipitated by unsustainable home price appreciation which was particularly pronounced in a relatively few regions. A correction was inevitable and the sooner we work through it, with a minimum of disorder, the sooner we will see home values stabilize, more buyers return to the housing market, and housing will again contribute to economic growth. Having stability in housing markets will in turn contribute to better conditions in credit markets for mortgage-backed securities.

More, "Data releases every month create headlines about declining housing sales, starts and prices. Yet, declines are exactly what we should expect during a correction. It takes time to work through the excess inventory – and we are. The question many are asking is how deep the correction will be and how long it will last. ...

More from Paulson's speech: "The Case-Shiller index of home prices in 10 major metropolitan areas showed an 11.4 percent decline in home prices over the 12 months ending in January, and the futures market is predicting that the index will decline another 13 percent in 2008. But we do not have a national housing market; housing markets are regional – and there is considerable variation in adjustment, with prices changing the most in areas that had the greatest overbuilding.

Amid this correction, there are many calls to "do something about housing." When people say this, they are urging any number of possible things – minimize foreclosures, make affordable mortgages more available, improve the secondary market and liquidity for mortgages, improve the mortgage origination process, prosecute fraud, reduce the inventory of homes for sale, or help communities hardest hit by foreclosures.

The `to do' list tends to get conflated. We must sort through each of these shared and desired outcomes, carefully choosing policies that minimize the impact of – but do not slow – the housing correction."

Thoughts? Comments? E-mail story tips to peter.viles@latimes.com.
Photo Credit: AP

Comments

[DearyD]

I'm so tired of all the fraud and abuse, we Americans, the fools and slaves, of the world accept.

Americans, take back your government and kick the bums out - term limits (and limits of those perks!) for Congress and removal of the Fed Reserve would make an enormous difference in our freedoms and our sovereignty. If you think for one moment that our elected representatives truly care about the individual or ever speak candidly and honorably, your thinking is faulty, which is why we have a bloated goverment and failing economy. Blame whomever, if you like, they're only part of the problem.

Our American apathy is the problem.

[Laker]

MyLessThanPrimeBeef,
I love you hair falling and solution of raising the floor level...
It is simply true!

[Rich]

Even some Wall Streeters don't seem to get the fundamental difference between Treasury and the FED; Treasury is a cabinet-level department withing the Executive Branch and has to please the President; the Fed is independently chartered and walks a line between Congress and the President. The new negative tenor of Paulson's public demeanor must be the position of Bush and his administration, which Paulson is now mouthpiece for, whereas the FED can continue to try solutions without having to fall in line with the Bushies. Don't expect the FED and treasury to be on the same page any more until Bush falls into the dust bin of history next Jan. 20...

[bullwinkle]

what Paulson ( and the treasury & fed is saying and doing..)

If you are bear stearns .. shoot we will bail you out

if you are a homeowner with a loan about to reset ... well the market will just have to correct...

bullpuckie!

[JohnnyB]

LA-renter/Condor, Exactly...

P's basically saying... “look my ‘fellow billionaires’, we've bilked this economy for tens of billions and loaded our offshore bank accounts to the rim. We need to appear as though we're coming clean, being straight and applying conservative principles to resolve this crisis. Chill out, you're still getting your private bailouts, you don't need to reveal your accounting and book keeping, so give us your junk - we’ll pay top dollar, restart the debt machine and get the gravy train moving again. Remember every dollar of debt means a hundred fold in proprietary derivative leverage. We can still bilk this economy whether the major housing driver is growing or shrinking. And, remember, you won’t have our friendly faces here much longer."

[jbunniii]

This is a very great man, except for his unfortunate fondness of bailing out Wall Street. But he's dead right about the housing market - it will correct itself much more efficiently and swiftly than anything the government can do to try to prevent it from doing so.