There has been testimony given to Congress that some of the banks have lied by saying people did not get the necessary documents to them, even though people had certified copies of receipts of mailing those very documents. At other times, the banks created extra paperwork, after deadlines, just to keep the loans from going through. And while many banks have said they were offering loans, when it actually came down to it, they did not offer said loans, nor did they actually offer the rates they later said they did.
With all this in mind, as well as the way Obama and the Fed threw money at the banks (which the banks then proceeded to either gamble in the Wall Street Casino or use to buy ultra-safe Treasury certificates), and with the country falling apart emotionally, financially, militarily, medically and educationally, how could any fully informed person wonder why housing sales would fall? As one would-be home buyer put it, "How can you buy a house when you don't know if you'll even have a job next month?"
Not all deficit spending is good. John Maynard Keynes never advocated bailing out underwater financial institutions run by crooks, and yet, that has been the essential Fed policy from Day One. Keynes believed that markets were fundamentally unstable, that government had a role to play in smoothing out capitalism's excesses, reducing inequality and creating jobs. He also believed that slumps will last much longer than necessary if government does not intervene and stimulate demand.
The
value of deficit spending depends on how the money is spent. The $700 billion TARP was largely wasted on
financial institutions that should have been nationalized, broken up, and their
toxic assets put up for auction.
The
$787 billion stimulus, on the other hand, was largely a success, because it
provided urgently needed relief for the states, benefits for unemployed
workers, tax cuts and infrastructure programs. Experts believe the stimulus increased
employment by roughly 2 million workers and raised GDP by 1.5% to 2.5%.
Stimulus is not a panacea, and no one ever
said it was. It's an emergency
blood-transfusion to get a sickly patient through a violent trauma. It did what it was designed to do, and it paid
for itself via the uptick in economic activity and growth.
Here's how Paul Krugman sums it up:
"...increasing government spending in a slump more or less pays for itself: it leads to higher output not just in the short run but in the long run, and therefore leads to higher revenue that very likely more than offsets the original expense." (Source: Paul Krugman's blog, "The Conscience of a Liberal," New York Times).
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