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Rex Nutting
Dec. 15, 2010, 12:02 a.m. EST
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First Take "º
It's all about jobs for the Fed
By Rex Nutting, MarketWatch
WASHINGTON (MarketWatch) "” The U.S. economy has made a lot of progress since the dark days of September 2008 "” investors are happy, bankers are secure, markets are functioning and businesses are flush. No depression here.
But what about the rest of us? When does the recovery kick in?
The stock market has finally climbed back where it was on that fateful weekend when Lehman Bros. filed for bankruptcy, but there has been little relief for the average family.
For typical Americans, two things determine their financial well-being: Their job and the equity they have in their home. They get almost all of their income from wages and salaries, while most of their wealth is tied up in their house. When wages and house prices are rising, they are confident. When wages and house prices are falling, they are fearful.
Policy makers may have rescued the banks, but they haven't figured out a way to bring back the jobs that were lost, nor have they found any answer to the problem that was the nucleus of the crisis: housing.
Homeowners have lost $7 trillion in housing wealth.
There's been a lot of focus on employment in recent months by voters, politicians and economic analysts. The big question in Washington has been what can be done about the unemployment rate, which has been stuck near 10%. Hence the salesmanship of the two parties to market the tax bill as a way to create jobs.
But there's been less attention paid to the other part of the family balance sheet: housing.
Housing is the forgotten crisis.
It wasn't always so neglected. Early on in the downturn, the government dug deep into its policy tool kit to find answers for the collapse of housing.
They lowered interest rates in an effort to boost affordability. They took over Fannie Mae and Freddie Mac, and they told the Federal Housing Administration to lend freely. The Federal Reserve purchased more than $1 trillion in mortgage-backed securities and bonds to support housing. They approved tax credits for buyers, and extended those credits several times. They tried to get lenders to modify loans.
One Harlem charter school gets creative with problem solving. WSJ's Christina Tsuei sees how the school is developing ingenuity and reasoning in their students at a time when research shows Americans are less creative.
Nothing has worked. At least, not well enough. The housing market is still dead, and worst of all, prices are falling again.
For a while, it seemed as if housing was at least bottoming out, if not improving. The low mortgage rates and tax credits boosted sales, but only temporarily. And when sales fell back, so did prices.
Nationally, home prices are down about 30% from their peak. In some cities, such as Phoenix and Las Vegas, prices are down more than 50% from the high point, according to the Case-Shiller home price index.
The Federal Open Market Committee keeps policy steady, and makes it clear that the high unemployment rate is driving policy, writes Rex Nutting.
2:47 p.m. Dec. 14, 2010
"Spain's benchmark IBEX 35 index declines 1.5% in wake of Moody's downgrade warning http://on.mktw.net/e3RaDU" 3:20 a.m. EST, Dec. 15, 2010 from MarketWatch
"Hong Kong declines on commodity, banking shares; Hang Seng Index down 0.5% http://on.mktw.net/hxp7XF" 9:05 p.m. EST, Dec. 14, 2010 from MarketWatch
"Japanese stocks edge higher after tankan; Nikkei Average up 0.1% http://on.mktw.net/hyvcaO" 7:07 p.m. EST, Dec. 14, 2010 from MarketWatch
"Craving comfort food in uncomfortable times http://bit.ly/ieqwcS" 6:16 p.m. EST, Dec. 14, 2010 from MarketWatch
"#GM offers buyouts to skilled workers http://bit.ly/hokIBZ" 5:52 p.m. EST, Dec. 14, 2010 from MarketWatch
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