Because Alan Greenspan and Ben Bernanke would not talk about the $8 trillion housing bubble, close to 30 million people are now either unemployed or underemployed. For some bizarre reason, policy people still have trouble talking about the bubble. For example, the NYT has an editorial discussing remedies for foreclosure which never mentions the housing bubble. The bubble should be central in such discussions because it says a great deal about the future directions of prices. If the bubble has largely deflated, as it has in places like Phoenix and Las Vegas, then it makes sense to try to stabilize prices and make policy as though prices will follow normal patterns (rising at the rate of inflation) in coming years. On the other hand, prices in many East Coast cities are still bubble-inflated as are prices in places like Los Angeles and San Diego. In these areas, prices are likely to fall in coming years leaving today's underwater homeowners further underwater. Discussing foreclosure policy without discussing the likely future direction of house prices is pointless. Those who are not talking about the bubble and the extent of its deflation are simply wasting time, not discussing housing policy.
--Dean Baker
