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Strategies & Market Trends : The Residential Real Estate Crash Index
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To: The Wharf who wrote (107336)2/29/2008 2:51:34 PM
From: HawkmoonRead Replies (1) of 306849
 
Yet you cannot have a free society if you have economic engineering so to me the present situation was so bizarre that there is no other solution but to limit man from sinking himself.

Well put.. and that's what the Fed's chartered with performing.. taking the "punch bowl away just as the party's getting started"..

But in the case of the past 10 years, they merely facilitated the alleviation of one bubble bursting (equites, internet bubble) into an real-estate bubble.

There certainly were mechanism the Fed (and Congress) could have implemented earlier to prevent hyper-inflation of core real-estate values. But there was a ton of money to be made by permitting banks to sell off loans to the securities markets (where there was considerable demand for the instruments). That demand for 30 year asset backed mortgages led lenders to lower their borrower requirements. Afterall, why not? Companies do the same thing with stocks when there's excess demand for their shares.. they issue more and sell them to small investors. Hell, some of them even sell shares directly via DRIPs..

But creation of debt increases the effective overall money supply. And that's also the jurisdiction of the Fed and Treasury department. Thus, they have an implicit responsibility of regulating the creation of money, whether "printed" in the course of Federal Reserve market operations, of by the issuance of asset back debt.

Personally, I'm not a laizzez faire capitalist, nor am I for centralized government planning. I believe that the line between private and public markets is something that must constantly change to meet the challenges of those markets and the overall economy.

And I think we've seen a serious bursting of the market's confidence in unregulated derivatives, especially when they result in asset bubbles. I think there will be increasing calls for government regulation in these areas on an international basis.

Hawk
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