And, which leads me to ask just how many taxpayer bailouts do we have to go through before Repulicans finally admit their responsibity for the collosal failures of deregulation and privatization?
Open the wallet, indeed. And where is that money going? To the biggest “free-market” advocates in the world, no?
I think home ownership is a good, for any number of reasons. It’s a relatively stable means of asset building, it promotes community stability, etc. But I suspect you’re getting at something which I tend to agree with – that the means of promoting home ownership shouldn’t be as publicly backed as it is. Then again, we get to the chicken/egg issue – I’m hardly willing to deconstruct the entire housing finance industry on the theory that the market’s magic beans will sprout up new support.
~
BP, they’ll never admit it. It’s dance where they vote public money into the private hands, and then campaign on what an awful thing it is. It works. On an electoral basis, anyway.
Yes, historically it has worked, at least until we arrived at a full scale economic catastrophe (aka a Great Depression). Almost eighty years later, my hope is that we’ve learned enough to be able to address the issues intelligently in time to avoid another catastrophe. However, I doubt that we have.
My new plan, in the event McCain is sworn in as president, is to move to Alaska, join that Alaska Independence Party, and ride out the next Great Depression by eating moose and using my oil revenue check for beer.
Heh. Even before Palin, I’ve thought that one of the more amusing things about Alaska being a reliably Republican state (and held up as a frontier of rugged individualism) was the fact that it’s the biggest welfare state in the union. They don’t go half assed, either, with things like temp unemployment and job retraining – no, it’s all in with straight cash payments.
With regards to BP and the horrors of privatization.
This Fannie/Freddie fiasco is not due to deregulation and privatization, but quite the opposite. Both of these GSEs have operated somewhere in between private and public entities creating a dangerous combination. They are privately owned but regulated and implicitly guaranteed by the federal government.
But first a brief history. Both used to be government agencies, where the government directly subsidized home ownership and absorbed housing risk. However, LBJ plagued with a deteriorating fiscal situation due to Vietnam and social spending semi privatized then in order to technically remove liabilities from the government balance sheet, He basically did some creative accounting.
So now what we have is the private market incentive of the firms management which is to maximize profits, which is good for a normal competitive wellfunctioning market, The problem is, we have this incentive mixed with an unnatural government subsidy, that being the “implicit guarantee” of the GSE’s which is their whole nature whole nature. The result was, the firms have no incentive to minimize risk, because they will be bailed out should a problem occur, and investors in their securities are willing to buy without regard to risk because of this guarantee. Essentially the government has promoted reckless financial investment over all these years.
Now mix this with the 1995 community reinvestment act, which went into affect in 1997, which basically forces banks to lend to “undeserved clients” (read: subprime), and very poor monetary policy from the FED in the early 2000s when they left interest rates too low and caused an asset bubble, we then have the perfect storm that came together to create the mess we are in.
Now this doesn’t meant that a lot of investors, borrowers, and firms also messed up here, but what too many people (especially on the left) dont realize is that markets react to incentives and to think that people wont do so out of some blind faith in central planning is naive. They call supply and demand the law of for a reason.
Our government has one, forced lending to less credit worthy homeowners, two, subsidized risky investment behavior, three, very poorly manipulated money supply growth through monetary policy. In the end, though not sufficient conditions for this whole housing mess, the government was very much a necessary condition in the three areas mentioned. In short, this is a result of what happens when through naivete and arrogance of central economic planning distorts markets and creates unintended consequences. So when looking for those to point the finger at, look no farther then very bad government intervention.
Vivian J. Paige
Yeah, I saw them announce that on their Twitter feed. (I’m really starting to dig that thing.)
Amit
get ready to open up your wallet. which leads me to ask. why is it conventional wisdom that home ownership is good for everyone?
BP
And, which leads me to ask just how many taxpayer bailouts do we have to go through before Repulicans finally admit their responsibity for the collosal failures of deregulation and privatization?
MB
Open the wallet, indeed. And where is that money going? To the biggest “free-market” advocates in the world, no?
I think home ownership is a good, for any number of reasons. It’s a relatively stable means of asset building, it promotes community stability, etc. But I suspect you’re getting at something which I tend to agree with – that the means of promoting home ownership shouldn’t be as publicly backed as it is. Then again, we get to the chicken/egg issue – I’m hardly willing to deconstruct the entire housing finance industry on the theory that the market’s magic beans will sprout up new support.
~
BP, they’ll never admit it. It’s dance where they vote public money into the private hands, and then campaign on what an awful thing it is. It works. On an electoral basis, anyway.
BP
MB,
Yes, historically it has worked, at least until we arrived at a full scale economic catastrophe (aka a Great Depression). Almost eighty years later, my hope is that we’ve learned enough to be able to address the issues intelligently in time to avoid another catastrophe. However, I doubt that we have.
My new plan, in the event McCain is sworn in as president, is to move to Alaska, join that Alaska Independence Party, and ride out the next Great Depression by eating moose and using my oil revenue check for beer.
MB
Heh. Even before Palin, I’ve thought that one of the more amusing things about Alaska being a reliably Republican state (and held up as a frontier of rugged individualism) was the fact that it’s the biggest welfare state in the union. They don’t go half assed, either, with things like temp unemployment and job retraining – no, it’s all in with straight cash payments.
EJ
With regards to BP and the horrors of privatization.
This Fannie/Freddie fiasco is not due to deregulation and privatization, but quite the opposite. Both of these GSEs have operated somewhere in between private and public entities creating a dangerous combination. They are privately owned but regulated and implicitly guaranteed by the federal government.
But first a brief history. Both used to be government agencies, where the government directly subsidized home ownership and absorbed housing risk. However, LBJ plagued with a deteriorating fiscal situation due to Vietnam and social spending semi privatized then in order to technically remove liabilities from the government balance sheet, He basically did some creative accounting.
So now what we have is the private market incentive of the firms management which is to maximize profits, which is good for a normal competitive wellfunctioning market, The problem is, we have this incentive mixed with an unnatural government subsidy, that being the “implicit guarantee” of the GSE’s which is their whole nature whole nature. The result was, the firms have no incentive to minimize risk, because they will be bailed out should a problem occur, and investors in their securities are willing to buy without regard to risk because of this guarantee. Essentially the government has promoted reckless financial investment over all these years.
Now mix this with the 1995 community reinvestment act, which went into affect in 1997, which basically forces banks to lend to “undeserved clients” (read: subprime), and very poor monetary policy from the FED in the early 2000s when they left interest rates too low and caused an asset bubble, we then have the perfect storm that came together to create the mess we are in.
Now this doesn’t meant that a lot of investors, borrowers, and firms also messed up here, but what too many people (especially on the left) dont realize is that markets react to incentives and to think that people wont do so out of some blind faith in central planning is naive. They call supply and demand the law of for a reason.
Our government has one, forced lending to less credit worthy homeowners, two, subsidized risky investment behavior, three, very poorly manipulated money supply growth through monetary policy. In the end, though not sufficient conditions for this whole housing mess, the government was very much a necessary condition in the three areas mentioned. In short, this is a result of what happens when through naivete and arrogance of central economic planning distorts markets and creates unintended consequences. So when looking for those to point the finger at, look no farther then very bad government intervention.
EJ
*”Now this doesn’t meant that a lot of investors, borrowers, and firms also DIDNT mess up here…”
i meant to say that they also messed up