Sheila Blair, Chairman of the Federal Deposit Insurance Corporation, makes a pretty straightforward case for government intervention in the housing crisis in this interview for U.S. News & World Report. Blair’s argument isn’t too disimilar from Bernanke’s explanation for the bailout of Bear Stearns: a total collapse would have disastrous knock-on effects, and it is therefore an efficient and necessary use of tax payer money to forestall such a calamitous event with targeted grants, rebates, and subsidies. Ms. Blair continues:
…we’ve seen a lot of situations where borrowers were in point of fact duped. They did not understand the terms of their loan. Secondly, there were some people who just got in over their heads. But even if you don’t have sympathy for these borrowers, the foreclosed properties are going to impact the surrounding neighbourhood properties. Vacant houses contribute to crime and erode the tax base, while distressed sales force down the value of nearby properties. In a broader sense, widespread foreclosures tend to undermine the confidence that home buyers and lenders have in the housing markets. That confidence will be essential to the recovery of our financial markets and economy.
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