Government’s failure to cure underwater homes causes learned helplessness in its people

May 31, 2011: The more people living in the United States fail to do anything about negative equity, the more they convince themselves that there’s nothing they can do. The more people perceive events as uncontrollable and unpredictable, the more stress they experience, and the less hope they feel about making changes in their lives. And those of us who know better should be doing all we can to break that vicious cycle.

Americans are pessimistic and it is affecting their behavior. The share of residents turning to food stamps has risen in nearly every state nationwide in the past year. The consumer confidence index shrank in May to 60.8 from 66.0 in April as Americans grew more pessimistic about job prospects and future incomes. Home prices continue their downward spiral with no end in sight. More folks than ever before in history are trying to get on disability, not because they cannot work, but because they fear never having a job again.

There’s nothing wrong with our workers — remember, just four years ago the unemployment rate was below 5 percent. The core of our economic problem is, instead, the debt — mainly mortgage debt — that households ran up during the bubble years… Now that the bubble has burst, that debt is acting as a persistent drag on the economy, preventing any real recovery in employment. And once you realize that the overhang of private debt is the problem, you realize that there are a number of things that could be done about it.

Government efforts to address falling property values and a stagnant economy have failed horribly because they have not addressed negative equity in people’s homes. HAMP, HAFA and of course TARP have not only failed to help but have backfired. Those programs are estimated to cost the American people trillions of dollars. But the real cost to the American people of these programs and related operations is a no growth economy and stubborn long-term unemployment.

Negative equity must be abolished. Efforts to cure unemployment will fail if negative equity is not simultaneously addressed. There has never been a time in United States history where a community has ever sustained negative equity for more than a few years. No neighborhood, no city, no state and no country can survive when so much of its real estate is underwater. The problem will not be solved by the legislature due to political obstacles or Wall Street due to Wall Street’s greed. The problem will be solved by each homeowner taking actions that resolve them of their underwater home.

The solution lies with individual action. No longer should we or can we rely on the government to cure this particular problem. Each homeowner must eliminate the negative equity in their home- either through a short sale or foreclosure. Only then will unemployment fall and the economy grow.

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