Robert Shiller's ideas for saving peoples' homes

Irrational Exuberance author Robert Shiller thinks housing is bad (Anyone disagree?) and also thinks that the government isn't doing enough to help people keep their homes: "We have to consider the possibility that the housing price downturn will eventually be as big as that of the last truly big decline, from 1925 to 1933, when prices fell by a total of 30 percent."

Few experts whose opinions are as highly valued as Shiller have suggested such a possibility, and it's worth thinking about the catastrophic consequences that could ensue. On average, homes are only down 5% from their peak -- Shiller is suggesting that we could only be 1/6th of the way through the crisis, in spite of all the hand wringing that has already taken place.

After referring to the broad initiatives that President Roosevelt and others initiated during the Depression, Shiller describes the public policy response to the current crisis as "anemic".

He may be right. But the other side to it is this: The subprime mortgages that are wreaking such havoc enabled a lot of people to acquire homes who had no business owning their own homes. Many had terrible credit, consumer debt, and didn't make substantial down payments. Mortgage fraud was a rampant means of getting homes for lower-income workers, often on the part of mortgage brokers.

Everyone talks about people losing homes like it's this horrible thing -- which it is. But during the housing bubble, homeownership became a reality for millions of people who never would have had that opportunity a few decades ago. An increased foreclosure rate is probably a natural and necessary part of increased homeownership among lower income people, and a broad public policy response may not be appropriate.