The Homebuyers' Tax Credit may be working--but if it is, it's accomplishing precisely the wrong thing. Paying people to move when we need them to stay in their houses is completely wrongheaded. We should be paying people to stay. Housing is a lot more than the housing market, and until we factor that reality in to whatever attempts we make to fix this mess, nothing we do will really work.

Imagine you needed people to stay on a ship to stabilize it during a storm. Would you hand them $8,000 bucks each to jump into lifeboats and row away? No you wouldn't. Because pretty soon everybody would be off the boat, $8,000 bucks or not. The instability would get worse, and soon those who didn't bail on their own would be thrown off or sink with the ship.

Instead, you would pay people $8,000 bucks apiece to stay, provide assurances that we're all in this together, that the ship is worth saving. You'd offer them a cruise when all this is over, just to prove that you believe the ship has a future.

People--single home buyers and investors alike--bought houses during the bubble because they believed (incorrectly) that it was a good investment, but not just based on the numbers alone. Sure, there was a desire to make money, but more than that, home ownership has historically functioned on a meta level as a source of security and prestige, a bulwark against the increasing riskiness of society, and as the only way for most ordinary people to acquire something that passes for wealth. I'd submit that even the greediest scammers had this American Dream kind of thinking, which really seems quaint by comparison with some of the other thinking out there.
 
Of course, it's time to talk about bankers and traders, the people who set up the bubble, cheered prices upwards, and are now, with the help of high-level bailouts that pay out to banks and leave individuals to swing in the wind, cheering prices on down again. (By the way, I'd suggest that those who think this crisis is all about the price of houses are flat-out wrong.)

For a glimpse at what is happening, please see this blog and the links. As far as I can tell, it's written by real-estate agents who are trying to do short sales and are discovering that the way the bailout has been structured actually encourages banks to let properties fall all the way into foreclosure.

http://activerain.com/blogsview/1243528/is-the-fdic-killing-short-sales-

For the bankers and traders, housing itself is an abstraction and the housing market is the only thing that's real, which is precisely backwards. Many of them simply cannot understand that the prime reason people are walking away from their houses is that they have realized that their homes are now viewed as a commodity and a falling one at that. Those bankers and traders who do grasp this concept are so divorced from reality that they figure that any fool who would view housing as anything other than a tradable asset deserves to lose his or her home and whatever else isn't nailed down.
 
This is why buying out bad mortgages at the bank level and paying banks to clean up the mess without doing much on the level of individual home mortgages or individual homeowners is a disaster.

All the banks can do is facilitate more churn and get paid to do it--and make no mistake, the bailout pays them to do it, handsomely. The "New" Indymac gets paid more for a foreclosure than a short sale, but for either of these transactions they get paid far more than the amount for which they bought the loan. So where's the motivation to give some poor sucker a loan modification? Nowhere. (Which is why I'm so glad that Amelie was able to get hers.) The enormous destabilizing effects of the housing crisis aren't their problem--they pay lip service to it and move on to collect their checks.

Banks and traders make piles of money by squeezing a relatively small amount of cash out of as many transactions as they can gin up. They're not going to support anything that means fewer transactions. They've got their own version of the American Dream: it's called the Uber-American Dream, and it sure as hell doesn't include doing what's right for neighborhoods or individuals beyond the travesty of "customer service" that goes along with presiding over a fleecing of one type or another. (It does, of course, include justifiably large bonuses for the Uber-Fleecers.)

Way back when all this started, I maintained that the right thing to do would be for the government to go into the hardest-hit neighborhoods and pay people to stay in their houses. Pay half a mortgage payment for five years, do short refinances, partner with homeowners, write down principals, whatever it took.

For my trouble, I got derision and catcalls. I was shocked to learn that people would rather hand billions of dollars to strangers than help out the guy down the street and a few blocks over who bought a house with an ARM and then couldn't sell it before the interest rates skyrocketed. Even if it meant that that guy's disaster impacted the whole neighborhood. 

So the bailout for ordinary people didn't happen, we got the bank bailout instead, and a whole raft of people is now living elsewhere, wherever elsewhere is.

Please note: It Is Not Over. And it's coming to a neighborhood near you.

Having pulled the floor out of housing prices and further destabilized the least stable among us, the crisis is now moving into the more stable neighborhoods, where joblessness and stock market losses are accomplishing what ARMS and No-Doc loans did in the first wave--making it impossible for people to meet their obligations. Another bottom to fall out, more foreclosures, and more transactions for the banks as people from the next neighborhood up the line desperately try to downsize ahead of the wave. And so on.

Please people, insist that our leaders provide us with TARRP--Troubled Asset Relief for Regular People. Continuing to trust the banks with this is just more paying the fox to foreclose on the henhouses.