Feds Can't Rebuild Housing in a Day

The federal government has tossed hundreds of billions of dollars at the various problems that ail the U.S. economy, but housing, the root cause of the crisis, will require more time than money to heal.

Despite the best efforts of the Treasury Department and the Federal Reserve, banks' wariness about consumers' financial health has become so dramatic, that even the unprecedented measures taken by authorities over the past few months to spur lending and boost the economy will take a good deal of time to have a measurable effect.

The government seems to be using all the tools in its arsenal to tackle housing from all ends. On the lender side, the Treasury Department has agreed to buy up to $500 billion worth of banks' bad loans; invest $250 billion in preferred equity stakes in banks to spur new, better lending; and engineered the rescue of several companies that were crumbling under the housing catastrophe.

On the borrower side, the Fed has drastically lowered key interest-rate targets in an attempt to make loans more affordable, and Treasury and other agencies have aided efforts to alter distressed borrowers' mortgages to keep them in their homes.

Despite those efforts, mortgage rates have spiked higher, home prices have continued to plunge and delinquencies and foreclosures have climbed at a steady pace. Those factors, combined with weak economic growth and rising unemployment, have led banks to tighten lending standards further. While loans represent a key business, banks aren't eager to dole out cash to people who may never pay it back.