"I could be wrong, but this strikes me as an attempt to simply unglue a market which has become utterly stuck."

Free Exchange yesterday posted about the attempts to drop the interest rate on mortgages and get home buying moving, thereby stabilizing the prices of houses:

"MANY commentators have attacked the Treasury plan to use Fannie Mae to help bring mortgage rates down on the grounds that reinflating the housing bubble is the last thing we ought to be doing. Serious analysis of the programme, like this, from Felix Salmon, has also proceeded on the basis that the goal of mortgage rate reductions is to help homeowners by stopping and reversing home price declines. I'm not sure this is the case."

I actually do believe that they're trying to stabilize housing prices.

"I could be wrong, but this strikes me as an attempt to simply unglue a market which has become utterly stuck. Fear of housing as a sector has (understandably) become quite common, and as a result, buyers have exited the market in droves. This has made housing markets very illiquid, which is problematic. A dearth of buyers makes it difficult for markets to clear. Prices may come down too far, too fast, and homeowners willing to accept something like a market price on their home may still be unable to sell. This illiquidity produces immobility, which has its own economic costs, as well as unnecessary defaults. Falling prices with lots of buyers is healthy, in other words, while falling prices with no buyers is not."

I do agree with this as well, but the question is how to best unglue the market. I've said that we should let home prices fall a bit more before doing anything, but I understand the economic and political concerns of why this is being done.

"So what to do? Well, nothing grabs a potential buyer's attention like an eye-popping interest rate (as we learned, to our great detriment, during the early part of the decade), and 4.5% is an eye-popping interest rate. And there is evidence that this just might work. Interest rates came down after the Federal Reserve announced a plan to purchase $600 billion in agency debt, leading to a 38% increase in last week's Mortgage Bankers Association index of applications for loans for purchase."

I do agree that this might work well. I certainly agree that it will help. I do not agree on a target rate, and I would let the Fannie/Freddie infusion be tried first.

"Under normal circumstances, there is no reason to subsidise homeownership or to work to excessively lower mortgage rates, but at the moment housing markets are simply broken. If this plan brings buyers back, it just might be worthwhile."

It might work, and I've made my case.

By the way, when he says: "Serious analysis of the programme" : Does he mean to demean average citizens such as myself trying to voice an opinion. Who is he talking about?