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Thomas Sowell: The Housing Boom and Bust

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The Hoover Institution

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Sowell Blames Frank, Bush, and Greenspan for Housing Bust

03 min 26 sec

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8 Comments

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scamper

Posts: 40

Posted: 06.08.10, 09:40 PM

@malik

that because people who understand the free market are not surprised by the greedy actions of banks. Would you be surprised that a used car salesman tried to get the highest price for a car?

I expect all greedy banks to be just that... greedy.
However, I'm not going to blame the banks.

It was the fault of government.
Going back to my used car salesman analogy. IF you gave a blank cheque to a used car salesman, and he bankrupted you... you have to blame yourself.

This is what the government did with banks.
Fannie/Freddie guaranteed mortgages... including riskier mortgages. This was a blank cheque for banks to create any number of mortgages and just sell them off knowing someone else would take the risk.

Heck, most of us would do the same. It's guaranteed money. There was no reason for banks to make sure loans were good. They sold them, the government guaranteed or bought them. Blank cheque.

Ditto for government guarantees (both explicit... such as the FDIC) and implicit.... the government is not going to let AIG fail.

So yes, I expect nothing less than the banks to try and make off with the most profit and be greedy. A two-year old can understand that. What is amazing is government handed them a blank cheque... that is who I blame.

If you're going to insure someone, you have to regulate them.
Notice the BIG IF There. IF you don't insure someone, you don't need to regulate them as much.

Since the government is insuring the banks and financial services industry, the government should made sure they were sound with tight regulations.
You know, just like how your car insurance company insures you, and regulated you by raising your rates if you engage in risky behavior (like DUI...).

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aussieconservative

Posts: 3

Posted: 08.21.09, 09:25 AM

The only way to know the price of any given thing is if it untampered with. Here in Australia we have a first home buyers grant but it has just added to the value of houses, it has not been a benefit for consumers. the 10,000 is just absorbed by the seller. similar increases have caused the same type of result.

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TreeLuvBurdpu

Posts: 43

Posted: 08.10.09, 10:32 PM

Quote:

Originally Posted by Luis R. Murrell

Personally, I find it quite dubious that financial institutions "just didn't know" the non-value of the mortgages they were buying and selling.

Usually an investor uses something like the prices other people are paying to gauge value. This is, after all, how we gauge the value of the dollar, by looking at what it can be exchanged for and how much effort we have to apply to acquire it.

If everyone is paying higher and higher prices for these properties, how do you know they are overvalued? If the prices are driven up by policies made at the top of the valuation chain wouldn't you suppose the rise would continue?

Working as the systems developer at several mortgage lenders in the epicenter of the housing crisis, Orange County, CA, I can tell you that these thoughts crossed the minds of these business men. But it is hard to convince people that the leaders at the very top of monetary policy had gone crazy.

However complicit the captains of business were they were marching to the drum of the Federal Reserve, FNMA and Freddie Mac.

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Luis R. Murrell

Posts: 6

Posted: 07.21.09, 02:57 PM

Personally, I find it quite dubious that financial institutions "just didn't know" the non-value of the mortgages they were buying and selling. If you're a smart businessman, where you don't know, you play it cautious. But then, since the 1930's big business has gotten so accustomed to various degrees of "corporate welfare" that when governments create an artificial windfall, they will line up at the trough, confident (and well-lobbied enough) that the Fed will bail them out somehow.

Although Dr. Sowell didn't mention this, you can go back even further than the 1930s- to the creation of the Federal Reserve Sysytem in 1913. The Fed undertook to free individual banks from the "limitations" imposed on them by the amount of their own individual reserves, to free them from the laws of the market- and to arrogate to government officials the right to decide how much credit they wished to make available at what times. A "cheap money" policy was the guiding idea and goal- and the result was the rampant speculation that led up to the Crash of 1929.

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Malik

Posts: 2

Posted: 07.18.09, 09:24 AM

I sense of bit of scape goat economics. I actually enjoyed reading Thomas S. Applied Economics: Beyond Stage One. Not that I agreed with everything but it really brings to light how important it is to think through a solution from end to end. However, some of his points of failure for the boom and bust are highly dubious. Notice how I said some. With no mention of prime borrowers who were just as negligent with their mortgages makes me scratch my head:
New Evidence on the Foreclosure Crisis
http://online.wsj.com/article/SB1246...Tabs%3Darticle

This "It was just the government and the free-market had their hands tied up and if the government would just step away all would be well" argument is just as dishonest. What discredits a lot of these free market ideologues is that they don't ever want to put any accountability on the free market wall street types. It's almost like Wall Street was the victim in all this, which is highly laughable. Fed Street, Main Street, and Wall Street had their hands in the cookie jar. We can debate who was more at fault, but to scape goat JUST the government and subprime lenders is dishonest.

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aussieconservative

Posts: 3

Posted: 07.17.09, 08:18 AM

I doubt that.

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aussieconservative

Posts: 3

Posted: 07.17.09, 08:17 AM

by implication you are saying that what Thomas Sowell is saying here is factually false.

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ATDavis80

Posts: 2

Posted: 07.15.09, 06:30 PM

How nice to have a completely ideologically driven explanation of such complicated and important issues. Next up: free market bible study with equally selective and one-sided passages from Wealth of Nations. Selah.

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