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Politics : American Presidential Politics and foreign affairs
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From: TimF5/6/2008 5:29:25 PM
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Is more regulation always the answer?

As we dig out from the rubble of the housing bubble, calls for more government regulation / involvement abound, including Alan Blinder's piece in Sunday's NYTimes.

But let me just play devil's advocate and suggest that perhaps the problems we encountered didn't arise from insufficient government involvement, but rather that government involvement actually helped cause the problems.

1. There has been and still is a huge government push for people to buy houses. We give a tax deduction for mortgage interest, even on some types of second homes. We have a plethora of policies to make homeowners out of everyone.

2. Our monetary authority, in its infinite wisdom, sometimes pushes interest rates extremely low, encouraging people to borrow a lot and for some investors to take unusual moves to chase returns.

3. Uncle Sam is known to have a soft heart. He is a sucker for a sad story. Put another way, Uncle Sam is a moral hazard creating machine.

While I am sure we will get more regulation, and as suggestions go, some of Blinder's are pretty good, I don't think it's correct to view the housing bubble as an example of the free market going nuts on its own and government having to step in to fix a private sector problem.

mungowitzend.blogspot.com
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