Monday, 29 September 2008

Regulation - not Deregulation - caused financial crisis

The current financial 'crisis', which I refer to as a 'perturbation', was caused by compassionate policies aimed at achieving higher housing affordability for low income workers.

As the video below shows, the legislation was originally introduced in the Carter administration and had an almost immediate effect of starting the housing bubble that was eventually going to pop and nearly bring everything else down with it.



Dennis Prager has a nice line that the problems with liberal policy is that it places compassion above standards.

Here is a classic example of the sound standards of work, savings history and deposit being thrown out the window in an effort to improve people's lives.

The video describes the result as 'cruel'.

I wouldn't use that term.

'Unwise' is a better description, though it doesn't matter what you call it - every mortgage owner in the world is going to pay the price.

(Nothing Follows)

2 comments:

Kevo said...

Hi Jack

Very impressive piece of viral marketing and the power of the internet.

Taking it along a step, the financiers also needed something in excess to lend to sub-prime communities ( new social category there )

and, fiscal conservatives will ruefully tell you the US Treasury and the Fed have been busily cranking out debt paper and greenbacks with gay abandon over the years too.

So the asset bubble needed a credit bubble - none of which looks like smart policy, as opposed to short-termism.

The proposed solution to to increase the US deficit by another U$700 bill - at least - to buy up dud mortgages.

So the first part of the solution just perpetuates the debt binge.

And it will be interesting to see if there is any rationalisation of the Community Reinvestment Act, or whether the financiers will still be mandated to channel finance to the Sub-primes ? Which just perpetuates the second leg of the problem.

The amount of ham-fisted government intervention in all this suggests that the only 'Failure of Capitalism' triumphed by the vocal socialists right now is actually a failure of Crony Capitalism not unreminiscent of what you would see in the Former CIS or various third world regimes ?

Of course, the Fed still has to sell all these T-bills to pay for the bail out, so perhaps Mr Bond Market might start to send a signal from outside the US system about what it thinks about the merit of all this, if foreign bond buyers aren't found to be lining up for ever more US$ paper ?

The market economy hasn't been beaten yet, but it sure is taking a battering from mismanagement.

Anonymous said...

What happened to the video??

BlueJ