"The root of this crisis, as with past financial and economic crises, results from federal government intervention into the economy, not to anything endemic to the market, nor to the actions of market participants.
"The collapse of the housing market has served as a catalyst for the economy's latest bust. Various federal mortgage programs through the FHA, Fannie Mae, and Freddie Mac have distorted the normal workings of the housing market.
"The Federal Reserve's loose monetary policy and lowering of interest rates were a major spur to the housing boom. Low interest rates influence marginal buyers, those who are sitting on the fence, and encourage them to take on a mortgage that they otherwise would not.
"It is time for the federal government to get out of the housing business."
-Ron Paul
3 comments:
I usualy like Ron Paul's rants, but this is nonsense. Both FM's had almost no influence on the bubble's atrocities, in the case of buble hotspot California they only have a market share of 15%. Mortgage giants like Countryside fueled the bubble, supported by greedy investors who didn't care for the risks, and shady wannabe houseowners, who either stupidly or with criminal intentions ignored the fact that they couldn't really afford those properties. What would have prevented this mess woiuld have been more regulation, forcing those gamblers to make at least remotely reasonable decisions. Deregulation was responsible for the S&L crisis way back when, and a lack of regulation is responsible for this mess now. That might be not exactly what libertarians want to hear, but it's the truth.
I believe what Paul is trying to say is that the Federal reserve lowering interest rates to near 0% is what spurred on the housing bubble.
When you have basically free, easy money, you have a lot of mal-investment.
You disagree?
"You disagree?"
Not, not to this interpretation, which makes a lot of sense. Maybe that's what Paul ment, but, keep in mind, the Fed is supposed to be independent from the government, so it's at least a bit lazy arguing to call this "federal government intervention into the economy". And market participants on both sides of the deals made grave errors in judgment, it can't really be said that they aren't responsible for the crisis, too. But, ok, the question is, should the government prevent people from making bad decisions? That's where libertarians and liberals have opposing views...
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