This link was sent to me from a fellow who works for an institution that tracks trends very carefully and really knows what’s what (wish I could say more). His attached message is: “we are doomed.” I don’t actually believe that unless the Bush administration gets its way. In any case, it is extremely interesting to read this New York Times story from 1999:
In a move that could help increase home ownership rates among minorities and low-income consumers, the Fannie Mae Corporation is easing the credit requirements on loans that it will purchase from banks and other lenders.
The action, which will begin as a pilot program involving 24 banks in 15 markets — including the New York metropolitan region — will encourage those banks to extend home mortgages to individuals whose credit is generally not good enough to qualify for conventional loans. Fannie Mae officials say they hope to make it a nationwide program by next spring.
Fannie Mae, the nation’s biggest underwriter of home mortgages, has been under increasing pressure from the Clinton Administration to expand mortgage loans among low and moderate income people and felt pressure from stock holders to maintain its phenomenal growth in profits.
In addition, banks, thrift institutions and mortgage companies have been pressing Fannie Mae to help them make more loans to so-called subprime borrowers. These borrowers whose incomes, credit ratings and savings are not good enough to qualify for conventional loans, can only get loans from finance companies that charge much higher interest rates — anywhere from three to four percentage points higher than conventional loans….
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 1980′s.
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Looks like the NY Times had a crystal ball. They must have borrowed it from Rothbard, Paul, Rockwell, etc.
Oh come on, Jeff. Say more. My guess is your correspondent sees the underlying asset values are just way too out of line, and there isn’t enough ink and cotton fiber paper in the world to disguise that fact.
It is astounding where capital has ended up. I’ll be driving in a run-down area, turn a corner, and there’s ten new McMansions being advertised for $400K each, in the middle of a bunch of stubbed empty lots.
Eventually there’ll be some rocks thrown thru the windows, more sophisticated vandals will tear out the wiring–and that will be that.
So Jeff, by “doomed” does your source mean Great Depression, Part Deux, or welcome to the third world, America?
Can someone point me to more articles & posts on the origins of the crisis? Elsewhere, I’ve asserted that government interference in the market was a major factor – as supported by the Times story. In response, I’ve been dismissed as pushing “discredited market fundamentalism” by a professor of government who opines that lack of regulation was the main problem. Thanks.
Newbie2,
See this recent post.
I found it encouraging that Paul was on the front page of CNN.com with this editorial, as well.
Fellow Newbies,
Go to the sources:
Mises, Interventionism: http://mises.org/etexts/mises/interventionism/contents.asp
Rothbard, The case against the Fed: http://mises.org/books/fed.pdf
Rothbard, The Great Depression: http://mises.org/rothbard/agd/contents.asp
Newbie2: “I’ve been dismissed as pushing “discredited market fundamentalism” by a professor of government who opines that lack of regulation was the main problem.”
You might consider the suggestion to not cast pearls before swine. It could save you a lot of frustration.
I have found that people who dismiss free markets as ideological fundamentalism are not interested in the truth, especially economics. Economics has four centuries at least of hard evidence that free markets work better than non-free markets. It’s not ideology; it’s empirical evidence. People who dismiss that evidence as ideology are hard-core socialists and anti-economics. Your professor clearly doesn’t know anything about economics and doesn’t want to learn any economics. If he did, he would offer counter evidence instead of insults. You’re better off just ignoring him. If you get a chance to present your ideas in class, by all means do so because some in the class will be interested in hearing the truth.
The American Spectator has a good article online at spectator.org called “The Economic Recovery Plan.” Here is a quote: “Without an understanding of government’s and regulations’ leading role in creating the current mess, there’ll be no recovery and we’ll be stuck with the Barack Obama plan.”
Aren’t you assuming that they actually have an interest in fixing the mess, when you stop and gape in wonder at how they could be so clueless as to its causes?
They aren’t motivated to understand the mess because they are not motivated to fix it. To misdiagnose and exacerbate the mess is the way to get all kinds of favored new tax and spending programs implemented – from “soaking the rich” to a national service program to a world war to seize oil and other commodities from “gougers”.
That NY Times article is priceless. I couldn’t believe the date on it. The article restores my faith in economists and reaffirms my distaste for politicians.
Jeff – please more info on what is meant by “doomed”.
I heard Warren Buffet say he is betting his $5B that the government will do the right thing.
I think we need to get people to define “doomed”. I talked to my grandmother who was a little girl during the depression 15 years ago. She said it wasn’t fun but everybody got by. She never did borrow money or trust banks her entire life. Is “doomed” meaning “no more credit”?
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