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Bailout comes to the West

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Jonathan Thompson | Dec 17, 2008 03:30 PM

Turns out Washington is bailing out more than just Wall Street. Federal help is also coming to the streets and cul de sacs of Western suburbia, from Phoenix to Las Vegas. Arizona, California and Nevada will all get big chunks of cash (from $72 million to $530 million) from the U.S. Department of Housing's Neighborhood Stabilization Funding to buy, repair and sell foreclosed-upon homes. The idea is to bring life back to neighborhoods that virtually have been abandoned thanks to a rash of foreclosures.

Says the Arizona Republic: 

The federal money will go toward the purchase of thousands of Valley foreclosure homes, which means more work for real-estate agents, appraisers, title agents and lenders. Many people who have struggled to get financing or down-payment money to buy a house will get help. The funds also will mean more jobs for contractors hired to fix up foreclosure homes.

Homeowners in neighborhoods hurt by too many foreclosures should see their home values stabilize and even increase as the money is spent on houses nearby.

That's good news for the greater Phoenix area, which has experienced some 35,000 foreclosures this year alone, and was one of the places hit hardest during the early phases of the economic crash.

Still, you've got to wonder if this is really such a good idea. After all, part of the problem in the first place was that it was too easy to borrow money to buy overpriced homes. When the housing bubble finally burst (after being artificially inflated for years), it brought things down to earth: Home values dropped to realistic levels (levels that people could afford based on their income, not on overeager and promiscuous lenders), and houses that should have never been built in the first place emptied out.

 And, since values have dropped to realistic levels, real people are starting to buy those houses now, without the feds butting in. So reports the Christian Science Monitor today:

The housing market in California's Central Valley – and in other sharply deflated markets in parts of California, Nevada, Florida, and Arizona – is showing signs of new life.

Prices have fallen so far that people of average salaries can afford to own homes again. Buyers are out in force.

So, average folks can finally afford to own houses, an indication that perhaps the big bubble burst was merely a massive correction, and not necessarily a catastrophe. If so, shouldn't we allow that correction to continue on it's natural course? Government interference -- heck, I'd even advocate socialism -- is necessary in certain instances. In this case, however, it seems to just be blowing up the same old bubble that got us into trouble in the first place.

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