Dems' subprime report is debatable
A foreclosed house for sale in Los Angeles.
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KAI RYSSDAL: Today's installment of the subprime saga takes us to the Congress of the United States... There's a new report out of the Joint Economic Committee that says the mortgage meltdown will cost billions in lost wealth, reduced tax revenues and decreased property values.
But as often happens when you start asking economists about things -- kind of like with politicians -- there are a couple of different points of view. Marketplace's Jill Barshay reports.
Jill Barshay: The report says that two million more households will lose their homes when subprime mortgage rates readjust in the next two years. That alone will erase $100 billion in housing wealth.
The foreclosed homes drop in value because they're auctioned for much less -- then neighbors also see their values fall.
Jay Brinkman is an economist at the Mortgage Bankers Association. He says politicians are exaggerating the crisis.
Jay Brinkman: Their report appears to be double what we are seeing and expecting in the market, even with fairly aggressive foreclosure rates that we are projecting.
Brinkman admits that states where lenders issued tons of subprime mortgages will take a hit: California, Florida, Ohio and Michigan. But assuming for a second Congress is right, how devastating would two million foreclosures be to the economy?
Gary Engelhardt teaches economics at Syracuse University. He says a $100 billion decline in property values wouldn't make much of a consumer dent in the broader $12-trillion economy.
Gary Engelhardt: Five to 10 billion dollars in consumption is not a lot, relative to the whole economy. What can tip us into recession are the credit market effects -- those are broader, they'll affect the whole economy and they'll affect access to capital within the economy.
Brinkman says the credit crunch is already playing out on Wall Street. Engelhardt says whether politicians and banks help prevent these foreclosures is unlikely to affect these financiers.
In New York, I'm Jill Barshay for Marketplace.