BARACK OBAMA’S PLAN TO RESTORE CONFIDENCE IN THE MARKETS, TACKLE THE HOUSING CRISIS AND HELP PROTECT FAMILIES FROM THE ECONOMIC SLOWDOWN

“The Federal Reserve does not exist to bail out financial institutions”

“Barack Obama believes we must ensure that the American dream of homeownership can continue.”

“Enact a Second $30 Billion Stimulus Package to Address the Mortgage Crisis, Protect Vulnerable Families and Strengthen the Economy”

Barack Obama

Scan the document, I can’t think of any interpretation besides: “Bailing out Wall St. is protecting the priveliged, but bailing out homeowners is like doing Gods work.” I’m still shocked by all the anecdotal chatter I hear everyday from Americans: people largely feel that they bear no responsibility in this housing meltdown, and that they were victims of Wall St all along. Sad thing is even as recently as the Superbowl weekend, I heard a radio ad that played: “Buy my book! Invest in in real estate! Home values ALWAYS go up! And remember, savers are LOSERS.” Perhaps what this country needs is an investment in economics education (and meanwhile, we’ll just have to settle for financial-literacy requirements at the booth!)

Why the American Dream?

We should really re-think this unhealthy obsession with homeownership. I suspect that homeownership is actually economically sub-optimal for a majority of Americans, even the semi-wealthy. A more constructive question would be to ask: Why is it considered normal for families to expose themselves to so much systematic risk? We’ve all learned about the importance of diversifying our retirement portfolios, except while John Doe was busy diversifying the shit out of his stocks, he forgot about that single asset which accounts for 60% of his networth...and home ownership was supposed to be about stability? The American Dream is possibly the worst and most widely-accepted piece of financial advice.

Some interesting reads:

Equity Participation in Homeownership by Institutional Investors »
Long-ass academic paper on diversifying risk away from the home-value, explores the possibility of co-ownership with institutional investors.

The Subprime Primer »