Here Comes the Mother of All Housing Bailout Bills

Economists think the current vicious cycle needs to be broken.

By SHARE

All along, the Fed's big fear has been the emergence of what it calls an "adverse feedback loop": a housing implosion cripples the financial system, which undercuts the economy, which hurts housing, and so on, and so on. And more and more policymakers are convinced that to break that cycle, you have to stabilize the housing market. Until that happens, credit markets and therefore the economy will stay anemic. That is why you will likely see in 2009 an attempt to go beyond the Dodd-Frank housing bailout bill to more directly and expansively boost the housing market. As Capitol Hill maven Jaret Seiberg of the Stanford Group writes today: "The second housing stimulus would focus again on stabilizing housing markets by providing more assistance to those looking to purchase a home. Such support is intended to slow—if not reverse—the home price declines that are at the heart of the crisis."

So unlike some plans, like John McCain's $300 billion idea to give everyone a new mortgage, Washington may opt for some sort of package of tax credits to help buyers. Of course, what policymakers should be doing long term is taking steps to remove the tax preference for housing versus other sorts of investments.