Haunted houses

Three months ago I wrote about vicious and virtuous circles in housing market policy. A new L.A. Times

Major lenders are repossessing homes in Southern California much faster than they can sell them, a development that could set off a downward spiral of price cuts and more foreclosures.

At some point -- maybe this fall, maybe in 2008 -- the lenders' inventories will grow so large that they will have no choice but to start aggressively cutting prices, many agents and analysts predict.

That, in turn, will put more pressure on individual sellers, who will have to reduce their own prices if they want to find a buyer.

As values fall, more people could lose their homes, which would swell the lenders' inventories anew.

Don't forget that the worst thing that can happen to homeowners is when houses on their block start losing value—that's where the phrase "there goes the neighborhood" comes from. Vicious circles like this are precisely why FDR was so wise when he said "inequitable enforced liquidation at a time of general distress is a proper concern of the government." Foreclosures beget foreclosures; collapsing prices beget collapsing prices—and, as I pointed out here, since American schools are funded largely by property taxes, our children's education might yet be one more value pulled down into the vortex.

Giving people extra help to stay in their homes, and preventing predatory practices that make future foreclosures likely, is a strategy to keep the dominoes from tipping. It's precisely why we need activist government—because at its most wise, it benefits everyone, not just those directly targeted by the program. I'm glad Hillary Clinton is taking a first step. I just can't imagine the billion dollars she is proposing will be nearly enough to undo the damage the right-wing deregulators did in the first place.

Views expressed on this page are those of the authors and not necessarily those of Campaign for America's Future or Institute for America's Future