"One of the clearest lessons of the past year is that these lending policies are anything but cheap. To get banks to lend at below-market rates, the government must insure mortgages against default. When those mortgages do default, as they have in droves over the past two years, taxpayers are on the hook. Ordinary taxpayers are currently facing the prospect of paying for the last rash of government-subsidized lending. No one should be thrilled at the idea of a new government guarantee program that makes us liable for billions, or trillions, of dollars of new, bad mortgages...As right as we are to blame the financial crisis on the baffling decisions made on Wall Street, we shouldn't ignore the long history of government policy designed to encourage home buying, which exposed taxpayers and the financial system to an enormous amount of risk.
In fact, the government shouldn't really be in the business of making housing more expensive at all. Price supports are usually a bad idea, because they distort supply decisions and redistribute from buyers to sellers. Why, exactly, should the government be encouraging more overbuilding in Las Vegas? Why, in an age of global warming, should the government subsidize more McMansions? Some economists argue that price supports are needed because prices are below fundamentals, but prices today remain significantly higher than either historical norms or supply costs."
Additionally, much of the environmental critique of the American landscape is the direct result of conscious public policy efforts, as described above.
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2 comments:
you can keep kicking the can down the road, but eventually it'll land at my feet.
no thanks.
what's happening? people/banks/investors have been irresponsible, and we want to make sure they get the opportunity for a graceful exit... at what cost? whatever.
In a sense, I agree . . . and, though I will go to the grave claiming that bubba was the best president of all time, he did begin the trend of encouraging unqualified buyers to get homes that they could not afford and normally would not have the credit to receive mortgages for.
If you look at REIT indicies stacked against the Willshire 5000, you will see that historically growth rates were very similar until the mid 90's where real estate started nearly parabolic growth. how much correlation there is between government policies surrounding the housing market is questionable, but they do not help at best.
the real estate market was clearly overpriced and no legitimate person will contend that, but, like the stock market currently, the market in general has a tendency to panic and overreact in bad times. should we prop up to prevent against collapse? i really don't see why not. it is in what way we decide to do that which should be in question.
i don't claim to understand the intricasies of the subprime bailout, but it sounded to me like the government bought a shit-ton (legitimate measurement . . . look it up if you don't believe me) of bad mortgages. logically this would lead me to believe that the property collateralized for these bad loans would go into government ownership in any cases of default. how wrong am i in this assumption?
if this is in fact the case, i doubt that the government would do agreat job handling this real estate, but the point is that it isn't a total loss. in fact, logically it seems to me that the subprime equities were only overpriced to the extent that the property market was overpriced (plus an additional percentage for interest returns), but in the end, everything seems like an overreaction to me.
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