For several years, Phoenix city has been an arid region in the south-western part of the United States and has benefited from a remarkable growth because of the well-known business saying, “Retail follows rooftops”.
The idea was very simple: roads, schools, and malls – a mini economic growth –followed wherever inexpensive suburban accommodation was permitted to boom.
Phoenix rapidly grew to become the fifth-biggest city in the US, its population growing to 6.5 million from one million in 1955. But Arizona, its capital state currently realises that the different aspect of the economic formula is only terribly efficient.
The domino effect due to the collapse in the housing market of Phoenix for the past two years has prompted construction and businesses companies to delay the road, shop, and school openings. This added to the depression of housing prices and encouraged businesses to push their plans back further.
“In only a couple of years, the breakdown trapped people in unfinished communities much like a fast-moving landslide bury people in their tracks”, said Arizona Republic newspaper last week.
Similar difficulties are infecting communities in south-eastern Florida and western Nevada as well, the only states with higher rates of foreclosure than the state of Arizona.
Last Wednesday, US President Barack Obama gave a US$275 billion (S$420 billion) support in a proposal to stem the foreclosure tides and to stop the economic descending spiral gripping communities.
“In the end, the home mortgage crisis, the financial crisis and this broader economic crisis are interconnected. We cannot successfully address any one of them without addressing them all,” the President said.
President Obama’s plan aims to assist 7 million to 9 million homeowners to obtain inexpensive mortgage terms. The rates lenders are prepared to offer and the borrowers can now afford, which pegged not more than 31% of the income of a borrower.
Mortgage giants Freddie Mac and Fannie Mae were provided with US$200 billion worth of capital in order to make the market stabilised and hold rates of mortgage down.
The US stock markets were not impressed by the highly anticipated plan. These stock markets closed flat during the lacklustre trading. This was the same story with the markets in Asia yesterday, where the lifeline of the President to homeowners did little to improve optimism regarding the outlook for the worldwide economy.
Reaction among Americans was nothing but subdued. Several expressed annoyance and anger on the Internet stating that their money was used to secure those people who lived further than their means.
Pres. Obama has anticipated this outrage, pointing out why there is a need for Americans to give out assistance to their fellow citizens: A study revealed that a single foreclosed residence lessen the price of close by property by 9%.
He gave assurance that the plan will not help those who are irresponsible or unscrupulous speculators, deceitful lenders or those people who knew they can’t afford the house they purchased.
In the Los Angeles Times, the President quoted saying, ”I’m not impressed. It’s mostly money for banks, not money for home-owners. The banks still decide who gets into this, and that’s been a problem all along“.
So far, the joint price tag for Pres. Obama’s economic rescue plans exceeded US$1 trillion. However, Pres. Obama said, ”Solving this crisis will require more than resources – it will require all of us to take responsibility. And all of us must learn to live within our means again”.