| Back in the 1990s many Marxist and Socialist | | | | the US government could not let Fannie and Freddie |
| commentators lamented the tepid increase in | | | | and the important housing market go bust – |
| globalisation and the rise of some form of individual | | | | generated a wide range of reckless credit instrument |
| freedom across much of the world. For these statists, | | | | creation on Wall Street. |
| the power of trade, the individual and freedom of | | | | House prices are the root of problem, and as with any |
| choice would entail a decrease in governmental power, | | | | product, house prices can rise or fall. When house |
| welfare the caring institutions of the nanny state. They | | | | prices due to the above causes and exacerbated by |
| should not have been so concerned. A government | | | | a massive over supply in the key regions of California, |
| and regulatory created financial panic will result in the | | | | Arizona and Florida collapsed, it was not long before |
| endless accretion of state power; more international | | | | over-leveraged banks and over-leveraged house |
| rules and regulations and more programs of love and | | | | speculators had to declare bankruptcy. |
| caring for the unwashed, terrified masses. Jubilee. | | | | So after 60 years of government market distortion |
| What caused the current crisis ? It is not a simplistic | | | | resulting in the erasure of about $30 Trillion of wealth |
| matter of Wall Street greed, though the Ivy League | | | | through housing price declines and a 40% stock |
| and Harvard trained buffoons on Wall Street creating | | | | market decline, the politicians answer will be of course |
| products and credit instruments that they did not | | | | to have more government involvement, more |
| understand, are certainly a key element in the crisis. | | | | over-sight, and of course a lot more spending. |
| The core of the issue lies in the socialisation of housing | | | | So far the Democrats and Bush have spent $3.5 |
| finance; regulatory corruption and the friendly-crony | | | | Trillion in misguided and ineffectual efforts to stop the |
| capitalism which exists in the US and Europe between | | | | markets from falling. You can't spend or print your way |
| bankers and their political masters. This destructive | | | | out of a problem which has been in development over |
| government distortion of markets can be identified as | | | | many years. The printing of money to create market |
| follows: | | | | liquidity will come at a huge future price in inflation, a |
| 1.Market distortion. The 1930s creation of government | | | | devalued currency and by extension, a rapidly lower |
| institutions to lend money or mortgages to home | | | | standard of living. The $1 Trillion in bailouts and welfare |
| buyers, weirdly named Freddie Mac and Fannie Mae. | | | | handouts will not save the banks, the markets or the |
| These firms were backed by the US government and | | | | poor, but they will make future taxpayers suffer tax |
| were incentivised with cheap taxpayer money to lend | | | | increases to pay off the debt and accumulated |
| to those who could not afford a mortgage. Between | | | | interest. |
| 2002 and 2007 the loan portfolios of these 2 | | | | The US government could have bought all the |
| companies doubled and they held almost 2/3 of all bad | | | | outstanding sub-prime, low grade house loans for |
| sub-prime or bad grade mortgage debt by 2008. | | | | about $500 billion and effectively stop the bleeding and |
| There was never a good reason for these firms to | | | | the market crisis at that moment. But that would be far |
| exist and 60 years of socialist engineering was bound | | | | too simple. Politicians smell a grand opportunity – |
| to result in a disaster at some point in the housing | | | | almost as large as the Globaloney Warming nonsense |
| market. | | | | – to impose themselves and their ridiculous views of |
| 2.No oversight of Freddie and Fannie and no oversight | | | | the world on others by creating fear, heightening |
| of lending standards for banks. A key element of a | | | | millenial rhetoric and posing government as the only |
| real capital market is the creation of laws and fair | | | | answer to save us all from oblivion. These geniuses |
| regulations. The regulators did not implement the | | | | created the problem and now they want more power |
| myriad and existing regulations to determine if the bad | | | | ? Fascinating logic. |
| grade or sub-prime lending posed a risk to the | | | | As Bush, himself a supporter of large government |
| American financial system. There are numerous | | | | projects and 'compassionate' conservativism so rightly |
| stories of speculators buying many homes or condos | | | | said in a November 14th 2008 speech at the |
| with no money down, and even a book was written | | | | Manhatten Institute in defending markets, we need less |
| by a Washington speculator who bought 50 condos | | | | government not more: |
| with no money down and flipped them within one year. | | | | “Capitalism is not perfect. But it is by far the most |
| 3.Corruption. Kickbacks from Freddie and Fannie and | | | | efficient and just way of structuring an economy. |
| Wall Street, to regulators and politicians were famously | | | | Capitalism offers people the freedom to choose |
| extensive. Obama was # 1 and #3 on the pay off list | | | | where they work and what they do, the opportunity to |
| of Freddie and Fannie, and regulators such as Chris | | | | buy or sell products they want, and the dignity that |
| Cox of the SEC and Barney Frank of the Senate | | | | comes with profiting from their talent and hard work. |
| Banking Committee whose job was to oversee the | | | | The free market provides the incentives to work, to |
| US Banking sector were in the top 3 as well. | | | | innovate, to save, to invest wisely, and to create jobs |
| 4.Subsidies. The US government since the days of | | | | for others. And as millions of people pursue these |
| Jimmy Carter made home ownership a national | | | | incentives together, whole societies benefit. |
| objective. When Bush took office the ownership rate | | | | Free-market capitalism is what makes it possible for a |
| was about 64%. US politicians were public in | | | | husband and wife to start their own business, or a |
| announcing that over 70% of Americans should own a | | | | new immigrant to open a restaurant, or a single mom |
| home. To this end home builders and developers | | | | to go back to college and to build a better career. It is |
| received tax breaks and subsidies totalling billions of | | | | what allowed entrepreneurs in Silicon Valley to change |
| dollars over 30 years to build housing. Home buyers | | | | the way the world sells products and searches for |
| were given subsidies and write offs as well to induce | | | | information. It's what transformed America from a |
| home buying. | | | | rugged frontier to a nation that gave the world the |
| 5.Cheap money. For 4 years from 2001 to 2005 the | | | | steamboat and the airplane, the computer and the |
| US had negative real interest rates and flooded the | | | | CAT scan, the Internet and the iPod. |
| credit markets with cheap money. Lending standards | | | | Free markets allowed Japan, an island with few natural |
| collapsed as people took more credit, equity lines and | | | | resources, to recover from war and grow into the |
| credit cards to purchase items they could not afford. | | | | world's second-largest economy. Free markets |
| Financial prudence was replaced at the individual level | | | | allowed South Korea to make itself into one of the |
| by a government created culture of credit, spending | | | | most technologically advanced societies in the world. |
| and unnecessary risk taking. | | | | Free markets turned small areas like Singapore and |
| 6.Market manipulation. US politicians and a variety of | | | | Hong Kong and Taiwan into global economic |
| socialist programs in the Housing and Urban | | | | players.” |
| Development agency; and in Community Reinvestment | | | | Individual reedom and free and fair economic |
| Acts including groups like ACORN, delivered more or | | | | exchange are synonymous. You cannot have |
| less free money and cheap loans to people who had | | | | regulated, state controlled markets and freedom of |
| no business getting a loan. Minority programs, lending | | | | speech, choice and contract. You cannot decrease |
| programs to help blacks and poor whites and other | | | | individual freedom and have a free and fair market |
| special 'categories' were created to push loans into the | | | | economy. The two concepts of personal and |
| hands of those too poor to afford them. | | | | economic freedom are linked – you impair or |
| 7.Wall Street stupidity based on moral hazard. In order | | | | decrease one and the other will surely follow. |
| to dilute the toxic nature of bad loans, banks and | | | | Over 60 years of socialised housing finance and |
| mortgage lenders allowed Wall Street geniuses to | | | | government intervention resulted in moral hazard and a |
| package various bad loans together into a derivative | | | | financial crisis which has wiped out the equivalent of 3 |
| which took pieces of the bad loan and packaged them | | | | US GDP's from personal wealth accounts. Giving such |
| with other bad loans which were sold off as credit | | | | creatures of manipulation more power, or the ability to |
| instruments to other financial institutions. Insurance | | | | wantonly and with great enthusiasm to spend money |
| contracts against default on these loan payments | | | | we don't have is irrational and will only sow the seeds |
| were also passed on to the buyers of these | | | | of the next great financial crisis which will occur in |
| derivatives. The problem was that Wall Street and | | | | about two years. At that time we will hear the same |
| most banks assumed that house prices would always | | | | appeals to community and love and watch the same |
| go up – the market after all was effectively insured | | | | group of politicians offer themselves and more |
| by the US government. This moral hazard – that | | | | government power, as the solution to save the world. |