Recent developments in the housing space demonstrate that sound, stimulative policy, coupled with natural capitalistic forces, can have a dramatic impact on a depressed and dysfunctional market.  This blog, in a 12/17/2008 entry titled, "Mortgage Rate Salvation," and a 12/14/2008 post titled, "Not So Extreme Home Makeover," promulgated the potential benefits of demand side stimuli (e.g. mortgage rate and tax incentives) and how they could stem the housing downturn.

Just months later we are seeing the fruits of such actions.  Housing starts, refinancings, sales of existing homes, and home prices have all begun to show very clear signs of stabilization, and in some instances, actual growth.

The Federal Reserve, through its quantitative easing efforts, has effectively reduced interest rates to the point where risk taking is no longer being drowned out by fear.  Homes are moving again and inventory is being worked down—halting a deflationary spiral and its concomitant deleterious effect on consumer wealth.  Couple that with a significant rise in home refinancings, and the seeds for a revitalized economy have been planted.  Most importantly, this was accomplished with no direct outlay of taxpayer dollars, and as such, little risk (assuming the Fed remains vigilant in its management of interest rates).  Compare this to all the convoluted, bureaucratic, expensive, and ineffective plans and programs the government has proffered.

A similarly positive outcome is available to us regarding the banking crisis if the government would look to catalyze, rather than co-opt the market.  This situation is nowhere as complex as it is being portrayed.  In fact, it's the government's hyperbolic commentary and haphazard policies that have paralyzed the markets.