US housing: Fed bid to turn the tide It was 35 years ago that US president Jimmy Carter declared the energy crisis "the moral equivalent of war." His use of martial language might not have galvanised Americans in the way he hoped, but it still is useful to think of economic struggles in military terms. Today's enemy is the housing crisis and the fight is going badly. Prices are down by a third and there is a glut of foreclosures, with another wave coming. Until now, the US has used the equivalent of massive air power, blanketing the economy with more than $2tn in purchases of mortgage and Treasury debt to bring rates down. The Federal Reserve is now urging Congress to put more boots on the ground by clearing away the backlog of foreclosures and stemming the tide of new ones. A Fed white paper sent to senior leaders of both houses last week points out that the ratio of home equity to disposable income has dropped from a 2006 peak of about 140 per cent to 55 per cent today - the lowest since the 1950s. Allowing more foreclosures not only further depresses this pool of wealth but makes it tough to normalise interest rate policy. An idea floated in the paper is to encourage bulk sales of foreclosures. Plenty of small investors have snapped up cheap homes, but not in chunks large enough to create critical mass. Not just Fannie Mae and Freddie Mac but private banks, if the Fed were to loosen its rules, could assemble managed portfolios for future sale. Another idea is to loosen restrictions for refinancing of loans with negative equity. Finally, the Fed advocates loan modifications with principal reductions. All this will cost money and upset many but the idea warrants consideration. With "air cover" in the form of easy money, such a three-pronged attack on inventories could both stabilise prices and turn the tide. The price tag may be high but it might prove cheaper than today's stalemate.