I read an interesting article today about the housing market and consumer confidence here. The article writes,
The missing ingredient today in the housing market, the economy and the financial system is trust.
- Banks won’t lend to each other because each thinks the other is going under.
- Bank won’t lend to consumers because they don’t think they can pay the loan back.
- Consumers don’t trust the government because just 6 months ago they pronounced that the economy has strong fundamentals.
- Buyers don’t trust the local housing market because they think it is going to collapse.
- No one trusts anyone.
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Trust and confidence are our enemy right now.
The banks don’t trust because they screw up and are under capitalized and have read the depression manuals. The whole idea is that it is a poker game. Who goes first? That is why the government is loading the system with money. They are trying to stop deflation. If they get to a magic mass of liquidity things could happen. They must hit that mass before something else falls apart. That is a simple way to understand it.
The no-trust has also created a wait-and-see attitude with many buyers and sellers. They’re afraid to make a move and would rather wait it out and see what direction the market takes.
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