Will We Ever Learn?
Has the passage of the economic bailout helped at all? Will it save our economy, or is this another example of the cure being worse than the disease?
It has been said that we best learn from experience. In the wake of the recent troubles in the economy, I am beginning to seriously doubt that assertion, especially as it applies to those in the government.
Experience should have taught those at the highest levels of government that it has historically and consistently been the involvement of the government itself which has both created and prolonged virtually every economic problem our nation has ever suffered. The current crisis is no exception.
The ‘credit crunch’ crisis is being fueled by the fallout of the housing market. This market has fallen due to the extremely large amount of foreclosures on houses financed with sub-prime loans extended to people without the income necessary to make the payments. This has left the lenders with losses they are unable to remedy. As the losses have mounted, the solvency of those lending institutions has become more and more precarious and eventually various large and important ones have failed. The largest and most important of these are the Federal Housing Finance Agency, better known as Fannie Mae, and the Federal Home Loan Mortgage Corporation, better known as Freddie Mac. Both are GSE’s, or government sponsored enterprises, and until this year they were stockholder-owned corporations whose purpose was to expand the housing market by creating a secondary market that would own or guarantee so-called “sub-prime” loans. In September of 2008, the Federal Government took over Freddie Mac and Fannie Mae, which currently owns or guarantees about half of all mortgages in the U.S. and “more than 80% of new mortgages being made in 2008,” according to chatmag.com news. In other words, the government “bailed out” Freddie Mac and Fannie Mae to the tune of $200,000,000,000.00! At that time we were assured that this step would stabilize a rapidly eroding housing and credit market. What actually happened is now we have a far worse situation in which another “bailout”, amounting to $700,000,000,000.00, is supposed to rescue the credit and housing market and save our economy. What has happened since this “bailout” was passed? The stock market is going bananas, housing values are still falling through the floor, retail sales are slumping more, and people are getting more frightened about the economy. It sure doesn’t look like anything is being rescued at all. What is the answer to this? For the Treasury Secretary to propose greater involvement by actually having the government become the owner of mortgages and securities, or at least guarantee all those that fail, and give the banks more money to lend without risk!
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Post CommentSweetLiberty
On October 24, 2008 at 4:11 pm
Well said! The only thing I would add is that the Community Reinvestment Act (CRA) imposed stiff penalties on lenders who did not write sub-prime loans, and FDIC coverage encourages risky behavior with its one-size-fits-all approach as opposed to charging higher premiums to banks that engage in high risk endeavors. However, DT, in answer to your question, no, I don’t believe as a species we will ever learn. Some of us get it, but you have to dig pretty deep to get there, and few have the inclination or patience. It is much easier to believe in a politician who promises quick fixes and equality to all than lift mandates and restrictions, letting the chips fall where they may and give the market a chance to self-adjust. The rising tide of European socialism is sweeping across the USA and it is a wave in which I do not believe we can ever fully recover from. The socialists will win by pulling America down to a lower level rather than building up other countries to a higher one. Is this how the Romans felt in their last days?