---

A Policy: Supporting House Prices
...As Representative Frank notes, the policy of the U.S. appears to be to support asset prices at almost any cost. This includes:

# The FHA insuring "bad loans" for buyers with a high probability of default.

# The first-time home buyer tax credit (the FTHB makes no sense from any other economic perspective).

# Delaying foreclosures, first with moratoriums and then with "trial modifications".

We could probably include the Fed buying GSE MBS to lower mortgage rates, and other policies like increasing the "conforming loan" limit to $729,750 in high cost states.

Intentionally encouraging loans with high default rates (insured at taxpayer expense), and the FTHB tax credit (especially allowing buyers to use the credit as a down payment) have stimulated demand. And delaying foreclosures has restricted supply.

This has had the desired effect of pushing up asset prices, especially at the low end.

It is "a policy", but is it a good policy?