Views: 25790|Replies: 70

Who caused the 2008 housing bubble to burst in the U.S.?   [Copy link] 中文

Rank: 3Rank: 3

Post time 2012-2-8 17:08:22 |Display all floors
This post was edited by Transhumanist at 2012-2-8 04:19

Who caused the 2008 housing bubble to burst in the U.S.?

A number of books have been published dealing with the current recession and its causes. I have been perplexed as to why the Republicans (no, I dislike both political parties) are not responding to the accusation that this is Bush’s recession, and not the real cause—government’s insistence that as a racist society we were denying minorities home loan mortgages; thus setting in motion from 1990 to 2008 the eventual collapse of the housing market. Do-gooders sunk the ship, though bush’s extravagant wars did not help the situation. Excerpts from Meltdown is a succinct summation of what happened:

Meltdown: A Free-Market Look at Why the Stock Market Collapsed, the Economy Tanked, and Government Bailouts Will Make Things Worse (Thomas E. Woods Jr., 2009)

    001—Fannie was also deeply involved in the politically instigated move to lower lending requirements in the name of helping “disadvantaged” groups. In September 1999, the New York Times reported that Fannie Mae was easing credit requirements on the mortgages it bought from banks. The initiative, the Times said, would encourage banks “to extend home mortgages to individuals whose credit is generally not good enough to qualify for conventional loans.” Fannie Mae had been “under increasing pressure from the Clinton Administration to expand mortgage loans among low and moderate income people.” Although “the new mortgages [would] be extended to all potential borrowers who can qualify for a mortgage,” one of the program’s goals was to “increase the number of minority and low-income home owners who [tended] to have worse credit ratings than non-Hispanic whites.” Even the Times understood the risk involved: “In moving, even tentatively, into this new area of lending, Fannie Mae is taking on significantly more risk, which may not pose any difficulties during flush economic times. But the government-subsidized corporation may run into trouble in an economic downturn, prompting a government rescue similar to that of the savings and loan industry in the 1980s.”

    002—Fannie and Freddie weren’t the only entities in Washington pushing for looser lending requirements. Government agencies of various kinds were pressuring lenders into making riskier loans in the name of “racial equality.” Not wanting to be on the wrong end of lawsuits demanding hundreds of millions in damages, these lenders did as they were told.

    Charges of racial discrimination in lending helped spur this rush. In 1992, a study by the Federal Reserve Bank of Boston claimed to find evidence that even allowing for differences in creditworthiness, minority applicants were still getting mortgage loans at lower rates than whites. That study was widely hailed as definitive by those who wanted to believe its conclusions, that American banks were guilty of discrimination against blacks and Hispanics (though not against Asians, who got mortgage loans at even higher rates than whites), and should be forced to make credit more widely available to people in inner-city neighborhoods. Evidence later surfaced exposing the sloppiness of the study, and showing that no evidence of discrimination was found when errors in the data were corrected, but it was too late. The pressure groups had their bludgeon and intended to use it.

    The Community Reinvestment Act (CRA), a Jimmy Carter-era law that was given new life by the Clinton administration, has received a great deal of attention and criticism since the housing bust began. That law opened banks up to crushing discrimination suits if they did not lend to minorities in numbers high enough to satisfy the authorities. But it wasn’t just the CRA that was pushing lower lending standards. It was the entire political establishment. And according to the University of Texas’s Stan Liebowitz, one thing a scan of the housing literature from 1990 until 2006 will not yield is any suggestion that “perhaps these weaker lending standards that every government agency involved with housing tried to advance, that Congress tried to advance, that the presidency tried to advance, that the GSEs tried to advance—and with which the penitent banks initially went along and eventually supported with enthusiasm—might lead to high defaults, particularly if housing prices should stop rising.”

    Shortly after its discrimination study was published, the Boston Fed also released a manual for banks on nondiscriminatory mortgage lending.

    003—But in discussions of the mortgage meltdown there may in fact have been too much emphasis on subprime loans. Although the driving force behind abandoning traditional lending standards was the federal government’s political goal of increasing homeownership, particularly among preferred minority groups, lending innovations like 100 percent loans (mortgages with no down payments) became institutionalized features of the industry, particularly when the Fed had made banks flush with reserves to lend. The push for relaxed lending standards for low- and middle-income borrowers was so pervasive and systematic, persisting for a full decade, that it is no surprise that it should have spilled over into the standards for higher-income borrowers as well.

    004—Make perfectly clear once and for all that there will be no bailouts, no looting of the public, on behalf of any firm, period. That would do more to jolt the financial sector into being sensible and cautious instead of reckless and irresponsible than all the regulatory tinkering in the world.

[continued below],,,,,,,,,

Use magic tools Report

Rank: 3Rank: 3

Post time 2012-2-8 17:08:45 |Display all floors
This post was edited by Transhumanist at 2012-2-8 04:20

005—In October 2008 three economists for the Federal Reserve Bank of Minneapolis released a study showing that four major scare claims that had been advanced on behalf of the bailout were false. First, it was not true that bank lending across the board had declined sharply. Wall Street firms had trouble borrowing (except from the government), but not the rest of us. As of October 8, the data showed no decline in business and consumer loans. Second, interbank lending, which was being described as essentially nonexistent, was in fact “healthy” according to the data. Third, non-financial businesses showed no sharp decline in their ability to secure short-term loans (called “commercial paper”). Although commercial paper issued by financial institutions had declined, commercial paper issued by nonfinancial institutions showed essentially no change during the crisis. Interest rates on commercial paper rose for financial institutions, but not for everybody else (and even the rate for financial institutions was still considerably lower than it had been from 2006 through mid-2007). Finally, even if banks were lending less, that didn’t spell doom for businesses hoping to borrow; the study found that about 80 percent of business borrowing took place outside the banking system.

    006—Meanwhile, the problems created by government’s monopoly powers and its central bank’s manipulation of money and interest rates are, hilariously enough, blamed on the “free market.”

    007—This is what sensible economists mean when they say credit has to be based on real savings and cannot be created out of thin air. You can print up all the dollars you want, the Fed can give the banks as much money created out of thin air as it likes, but there is no avoiding the simple fact that there are only eight loaves of bread in existence. Ben Bernanke doesn’t have any loaves of bread, and none of the financial tools at his disposal can produce any, either. All the monetary manipulation in the world cannot defy the constraints mercilessly imposed by reality.

    008—You do not win friends in the political and media establishments by proposing a monetary system that cannot be exploited by governments to enrich their friends, enable their addiction to spending and looting, and fund their bailouts. But when you ask a question that sends respectable opinion into hysterics, that’s often a sign you’re on the right track.

    009—The executive branch first seized Fannie and Freddie, and Congress then increased the amount of money they could spend on mortgages. These zombie companies have already drawn enough of the mortgage market away from where truly free-market channels, unencumbered by firms with state-granted monopoly privileges like Fannie and Freddie, would have taken it. “The fact that government bears such a huge responsibility for the current mess,” argues Harvard’s Jeffrey Miron, “means any response should eliminate the conditions that created this situation in the first place, not attempt to fix bad government with more government.” That means, at a minimum, “getting rid of Fannie Mae and Freddie Mac.” Miron is right: Fannie and Freddie should be put into bankruptcy receivership, and their assets auctioned off to private mortgage guarantors. Certainly its mortgage-reduction program, with all its unfairness and moral hazard, should be discontinued immediately.

    People who disbelieved Barack Obama’s rhetoric about “change” were sternly lectured for their supposedly undue cynicism. But early indications are that the cynics were right: “change” means more bailouts and a less free market—the very same economic program of the presidential administration Obama so sharply criticized—and government personnel drawn from the same revolving-door pool of New York and Washington insiders who were blindsided by the crisis, including (as chief of staff) a former director of Freddie Mac. If Obama wants to prove he is serious about change and that his presidential tenure will be truly historic, he will pledge that under his watch there will be no bailouts of any private company for any reason.

    010—As Ludwig von Mises once said, the history of money is the history of government efforts to destroy money. If ever there was a monopoly with which government could not be trusted, this is it. The temptation to debase the money and impoverish the people in order to benefit favored constituencies, hoping most people won’t know the source of their declining standard of living, is too great. The present monetary system encourages risk and recklessness, with financial firms accumulating ever-higher pyramids of debt on top of a small sliver of equity—just the opposite of the much higher equity ratios banks maintained even in the imperfect nineteenth century. And as we have seen, the central bank’s inflation of the money supply by its increases in bank reserves is responsible for the boom-bust cycle.

    011—It has always, since the privilege of issuing money was first explicitly represented as a Royal prerogative, been advocated because the power to issue money was essential for the finance of the government—not in order to give us good money, but in order to give to government access to the tap where it can draw the money it needs by manufacturing it. That, ladies and gentlemen, is not a method by which we can hope ever to get good money. To put it into the hands of an institution which is protected against competition, which can force us to accept the money, which is subject to incessant political pressure, such an authority will not ever again give us good money.

    012—Mises put it this way: “Everyone carries a part of society on his shoulders; no one is relieved of his share of responsibility by others. And no one can find a safe way out for himself if society is sweeping toward destruction. Therefore, everyone, in his own interests, must thrust himself vigorously into the intellectual battle. None can stand aside with unconcern; the interest of everyone hangs on the result. Whether he chooses or not, every man is drawn into the great historical struggle, the decisive battle into which our epoch has plunged us.”,,,,,,,,,

Use magic tools Report

Rank: 2

Post time 2012-9-14 00:06:32 |Display all floors
Too many bad loans to Africans.

Use magic tools Report

Rank: 2

Post time 2013-1-15 17:25:16 |Display all floors
Yes, I know about the reason already.

Use magic tools Report

Rank: 8Rank: 8

2016 Most Popular Member 2015 Most Popular Member 2014 Most Popular Member

Post time 2013-1-15 17:31:43 |Display all floors
A quick buck and greed

Use magic tools Report

Rank: 8Rank: 8

Post time 2013-1-15 21:37:26 |Display all floors
Greedy bastard bankers.
Your own mind is a sacred enclosure into which nothing harmful can enter except by your permission. Arnold Bennett

Use magic tools Report

Rank: 8Rank: 8

Post time 2013-1-15 21:59:54 |Display all floors
raton Post time: 2013-1-15 21:56
You know nothing..! Stupid americans and greedy thieving jews. The jews gave stupid american mortg ...

another stupid american.

Thats a bit harsh, what they should have done is let them keep their homes and bail THEM out.

NOT the Bankers.
Your own mind is a sacred enclosure into which nothing harmful can enter except by your permission. Arnold Bennett

Use magic tools Report

You can't reply post until you log in Log in | register

Contact us:Tel: (86)010-84883548, Email:
Blog announcement:| We reserve the right, and you authorize us, to use content, including words, photos and videos, which you provide to our blog
platform, for non-profit purposes on China Daily media, comprising newspaper, website, iPad and other social media accounts.