Free Markets, Free People

Was government housing policy the cause of the financial crisis

Well Barney Franks and all the architects of that policy say “no”.  But it seems clear they’re wrong:


Twitter: @McQandO

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11 Responses to Was government housing policy the cause of the financial crisis

  • I think Bwany even admitted it. Once. Really, nobody with a working brain fails to see this.

  • If one truly understands economics, (and I don’t nearly understand it all, but more than most) then you know that it is impossible for what happened to happen in a free market.

    What will happen, sans government meddling, is that you will have a boom and bust cycle, but the booms will be relatively small, and the busts will be short lived. That is because capital will flow freely to areas were it can get a good return on investment.

    But when governments meddle, both in causing the crises, and in creating uncertainly after the crises, then capital will not flow freely and apply it’s healing powers to those areas of the economy where it is needed.

    • @kyle 8 Another thing…without SOME FORCE moving them off, industries will stick to “industry standards and practices”. They are called that for a reason. And what we saw was a MASSIVE market distortion that GUTTED industry standards and practices. This came as a DIRECT result of direct and indirect government pressure, aimed at social engineering.

      • @Ragspierre Think how much better it will be when all the animals are equal but some are more equal than others.

  • Your narrative just isn’t persuasive. It was  greedy businessmen. And lack of regulation. And people consuming too much, which started with Reagan. Yes, the companies involved all just went off the rails, and on their own created a bubble to increase their profits and bonuses. While never, ever worrying about the long term. Because only wise bureaucrats do that. With my vast experience in pizza management, I intuitively understand how businessmen think, and of course my godlike powers of political science give me complete understanding of the magical powers of government. I’ve explained to you dense righties a dozen times that the government just had nothing to do with the housing bubble. We know it’s true because the consensus narrative here in the faculty lounge says so. So just accept that wise pragmatic moderate leftists with advanced degrees who have everyone’s best interests in mind should be passing regulations night and day to prevent this from ever happening again. Which would obviously be the case if we had, say, a Sarah Palin presidency at some point {shudder}. Businessmen would see those naughty librarian glasses, that ample bosom, and those winks that say “Hey, big boy, I got your bubble right here, come and get it.” and those businessmen would lose all common sense if they didn’t have wise bureaucrats to restrain them.

    • @Ott Scerb Ott, how we’ve missed your incisive (rich, creamy, smooth) analysis.

    • @Ott Scerb The basic point is that the recession of 2001 wasn’t a typical postwar slump, brought on when an inflation-fighting Fed raises interest rates and easily ended by a snapback in housing and consumer spending when the Fed brings rates back down again. This was a prewar-style recession, a morning after brought on by irrational exuberance. To fight this recession the Fed needs more than a snapback; it needs soaring household spending to offset moribund business investment. And to do that, as Paul McCulley of Pimco put it, Alan Greenspan needs to create a housing bubble to replace the Nasdaq bubble._______________________________________________

      That was Paul Krugman in Aug. of 2002. Greenspan appears to have done just that, too. ‘Course that had NOTHING to do with anything…

  • This gets to the surface of the problem but doesn’t really explain it very well. The bottom line is that the “toxic assets” that have been referred to since 2008 are this under-performing mortgages. These are what have made so many financial institutions so weak. The “derivatives market” was the second domino” to fall.

    • @Neo_ Yes, and the value of the assets backing those mortgages has fallen as well. Then due to Basel capital requirements, Banks start going crazy pulling in loans, buying government debt which is ranked high on the list of safe assets, and stop lending.

  • That’s a pretty good wrap-up.