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Description edit
This is a plain-English explanation of how we got into the current economic disaster that developed out of the economics and politics of the housing boom and bust. The “creative” financing of home mortgages and the even more “creative” marketing of financial securities based on American... read more
Ridiculously Simplified Synopsis edit
Quotes edit
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“government agencies not only approved the more lax standards for mortgage loan applicants, government officials were in fact the driving force behind the loosening of mortgage loan requirements”
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“In the case of the housing market collapse, much has been made of the claim that there was inadequate regulatory agency oversight of the financial markets that turned home mortgages into esoteric Wall Street securities, which added to the risk”
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“One of the driving forces behind the strong pressures brought to bear against financial institutions, to lend to people they were not lending to as often as to others, has been a widespread belief that lenders' existing standards and practices discriminated against non-white applicants for mortgage loans, whether intentionally or systemically”
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“These lax lending standards were the foundation for a house of cards that was ready to collapse with a relatively small nudge”
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The political meaning of affordable housing is that individuals choose their housing and government somehow makes it financially possible for them to have it.
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it is necessary to be clear that this was not a matter of the regulatory agencies permitting lower mortgage lending standards but of those federal agencies requiring lower standards, in order to meet politically defined goals.
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“the affordability of housing is overwhelmingly a function of just one thing, the extent to which governments place artificial restrictions on the supply of residential land.”
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As the Wall Street Journal put it: “Their profit is privatized but their risk is socialized.”
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Altogether, the bailouts of Fannie Mae and Freddie Mac would cost the taxpayers more than the bailouts of the Bank of America, Citigroup, J.P. Morgan Chase, and Wells Fargo combined.
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The development of lax lending standards, both by banks and by Fannie Mae and Freddie Mac standing behind the banks, came not from a lack of government regulation and oversight, but precisely as a result of government regulation and oversight, directed toward the politically popular goal of more “home ownership” through “affordable housing,” especially for low-income home buyers. These lax lending standards were the foundation for a house of cards that was ready to collapse with a relatively small nudge.
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One of the consequences, however, of reselling mortgages on a large scale is that the initial lender has fewer incentives to be meticulous about the financial qualifications of the people to whom mortgage loans are made.
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It is very doubtful if many in academic communities who have campaigned zealously for land use restrictions under any of the heady and lofty labels used for these restrictions, have any idea that they are in any way responsible for the dire financial conditions in the country today or for the millions of workers who have lost their jobs. Social crusaders are not forced to confront the consequences of their choices, even in their own minds or consciences, much less pay a tangible price for the havoc they leave in their wake while feeling noble.
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In June 2004, in response to President Bush’s expressed concerns about the riskiness of Fannie Mae and Freddie Mac, seventy-six Democrats in the House of Representatives sent him a letter defending these government-sponsored enterprises, and again making the case that “an exclusive focus on safety and soundness is likely to come, in practice, at the expense of affordable housing.” These 76 House members included such prominent individuals as Nancy Pelosi, Barney Frank, Maxine Waters and Charles Rangel.
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One of the things that government can do more effectively than any other institution is generate uncertainty, simply because government decisions constrain everyone else’s decisions—and changing government policies make it difficult or impossible to know what to expect when making either business or personal economic plans.
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Authors & Contributors edit
- Thomas Sowell (Author)
Classification edit
- Library of Congress: Add the Library of Congress Classification.
- Dewey: 332.720973
Subjects edit
- Books › Business & Investing › Economics › Money & Monetary Policy
- Books › Business & Investing › International › Economic Conditions
- Books › Business & Investing › Economics › Economic Conditions
- Books › Business & Investing › Economics › Economic Policy & Development
- Books › Business & Investing › Real Estate
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