I don't understand the economy. The only very limited education I received was in a political science class that goes back so far as to pre-date the loss of my virginity. Which isn't saying much, but still...I'm about the last thing from an expert as they come.

Still...I'm finding myself completely baffled by what seems to pass as basic orthodox assumptions about our current cesspool of economic travails. And it really has me wondering what I'm not seeing that they (the economic intelligentsia) are. This confusion I have with many facets of our economy is so widespread, that I figured I'd lay them out issue by issue. This will give my loyal 1 to 2 readers something to chew over on the upcoming days AND an electric sense of excitement regarding what fascinating new economic topic I will raise with each new post.

Are you ready for this?

Let me start with the housing crisis. It seems I've repeatedly heard from the mainstream media and established economic gurus that we have to get home values rising again. And it's not difficult to see why there's concern. Just this past quarter, home values dropped by 16.6%.

 In fact, I just got back visiting my brother and his family in Queen Creek, Arizona where in the past year or so, the house they recently bought has dropped in value by $150,000. That's just painful to think about. So clearly, I can see in their situation how that's a goal worth fighting for.

But then I'm confronted with a larger concern - home values, by and large, have grown to ridiculous proportions. I saw it in my own hometown of Missoula where there was a time that homes were selling faster and growing in price at a pace that made no sense because I knew our city was not an undertapped economic activity creating mecca due to  its limited opportunities. The main question that kept rolling through my mind was "who can afford to buy these houses?"

And it's apparent now that, in reality, not that many could. They just took advantage of the ubiquitous array of financing schemes  (interest-only loans, adjustable rate loans, interest balloon rates, etc)  that they were able to get their foot in the door of a house with little actual wealth put in and zero to little income available for the spikes in monthly payments. And in the end, far too many people were overextended and living beyond their means.

I have very little doubt that this effect was far more pronounced in California, Florida and Arizona where just hearing the average housing prices consistently gave me the willies. I couldn't fathom the deep yawning chasm between a 2,000 square foot, 3 bedroom, 2 bathroom house in need of much repair in the Bay Area of California and a similar home in Missoula. Surely, the average salary in those areas were not THAT much higher than here (and I'll put up my dukes on the issue of 'quality of life').

Of course, I had no notion of the depth of sub prime mortgage lending and other ridiculously risky financing options that buyers had. So I can't help but come to the conclusion that the housing prices we saw in the early to mid 2000's were epically aberrational. A veritable house of straw, an illusion that didn't even come close to reflecting the "intrinsic value" of housing (if there is such a thing as intrinsic value).

If I'm right in perceiving it this way - and I would love for someone to correct me for I know precious little about the economy or how things work - how on earth could we possibly be able to maintain those housing prices? With all of these financing schemes laid to waste, who can now possibly afford to live in them? What kind of economic activity could possibly allow that many people to make that much MORE money than they were making to be able to afford these houses?

Shouldn't we just accept that we NEED the values of our homes to go down? I realize the cost to people who bought houses and are dutifully paying off their mortgages (I would be included in that group). Shouldn't our governmental rescue efforts focus on compensating homeowners for the reduction in their home values rather than finding ways (and I don't even know what these techniques would be) to maintain or raise current values?  

I'm certainly of a mind that, for the most part, it was the unregulated collateralized debt obligation system that is responsible for coaxing people to purchase homes with risky financing, with the promise that home values will grow continuously over time, so I don't feel that most of the homeowners facing foreclosure or who've seen the value of their homes drop precipitously bear the cost of our political failure to fairly regulate and manage the financial industry.

Am I crazy? Is there something wrong with approaching the housing market this way? This is not a rhetorical question. In my opinion, housing prices - particularly in bloated areas like the California and Florida - need to go down substantially so that more people can afford to buy them on their current salaries. This seems to make much more sense to me than trying to shoehorn home buyers back into an inflated market with more governmental protections.