Housing is and appears shall be a long term drag on any economic recovery. Amazingly, housing was not appreciated by Alan Greenspan as chairman of the Federal Reserve, who believed it played a minor role in the economic welfare of the nation. The bubble that created the housing boom inflated prices, which rewarded the banks, was made possible by the Fed failing to curb excesses or oversight. The banking industry grew rich and fat off average Americans. Securitizing mortgages into complex structures permitted the bundlers to intentionally hide inherent weakness of loans that were destined to fall into foreclosures.
Congress played a significant role in opening the door to profiteers who took full advantage of a Wild West frontier whose marshall was forbidden to investigate or rein in abuses. The belief that the market would self correct is and was a fallacy foisted on an unknowing America by those who should have known better.
The American taxpayer, the government and the Fed has bailed out the banks. Unemployment and housing prices have suffered by the indifference shown by the government and the Fed to truly address the cancer that is destroying home ownership. But the cure is simple.
For the millions of Americans who are underwater but have fulfilled their obligations by paying their mortgage the Fed should offer a new 30-year mortgage at 4 percent interest. Where banks enriched themselves by over valuing homes a reduction of principle would be just.