"Yet the government's efforts are the primary reason the housing market is functioning at all, economists and housing experts say, which makes an exit unlikely any time soon," reports an article in today's Wall Street Journal. Not the Nation magazine, the Wall Street Journal.
So-called experts aside, it's hard to believe that without the government's efforts, those in need of housing and those with space to rent or sell would not find some way to negotiate exchanges with each other at market-clearing prices, creating a functioning market. There's just too much demand and too much supply for that not to happen. At least it may be worth testing the counterfactual and seeing what would happen if the government exited the housing market. It's possible that prices would go down, and that some of the mortgage-backed securities held by banks would become less valuable then they are now, and that some of the bankers who bought those mortgage-backed securities would make less money or lose their jobs. But that might all be the working of a functioning market, not a non-functioning one. In functioning markets, prices can go down as well as up.
More broadly, at a certain point, the building up of all these assertions about the need for the government's efforts starts to raise some more fundamental questions. If the government is needed to make the housing market function, and to back the banks and the automakers, and to make the student loan market function, and to make the health care market function, eventually President Obama's claim of yesterday, "I have always been a strong believer in the power of the free market," starts to ring hollow.