Don’t expect major intervention from the government in the housing crisis if the Federal Reserve Bank has any say in the matter. According to a study by Fed economist William Emmons, intervention would result in keeping home prices artificially higher, allow builders to keep turning out more dwellings, and exacerbate the existing oversupply. Allowing market forces to cause prices to fall keeps builders in check and will allow the supply to eventually match the demand for homes.

And the current rash of foreclosures? “Unpleasant but essential,” claims Mr. Emmons. Without the ability to foreclose on loans and sieze collateral, lenders would have to charge rates characteristic of unsecured debt, such as credit cards. The ability to take the house back lowers the risk of making the loan and keeps mortgage financiang less expensive for all of us.

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