Tuesday, July 29, 2008

What Is Happening to Our Wealth?

Krugman makes an interesting point about the Band-Aid Housing bill and something that it is not fixing in the broken housing markets:

After all, the new bill will, at best, make a modest dent in the rate of foreclosures. And it does nothing at all for those who aren't in danger of losing their houses but are seeing much if not all of their net worth wiped out — a particularly bitter blow to Americans who are nearing retirement, or thought they were until they discovered that they couldn't afford to stop working.

It's too late to avoid that pain. But we can try to ensure that we don't face more and bigger crises in the future.

This is an important point, because most people have almost all their wealth in their houses. When the value of those houses goes down so does the average wealth in this country. It's not only people close to retirement who are going to suffer from that (though their suffering is the hardest to avoid), it's also people who planned to take out loans against the house to finance their children's education, say.