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Politics : Politics for Pros- moderated -- Ignore unavailable to you. Want to Upgrade?

To: cirrus who wrote (279635)	11/9/2008 1:24:17 PM
From: Nadine Carroll	3 Recommendations Respond to of 793756

Obviously the capital gains reductions, since it applied only to primary homes, didn't cause a massive bull market for housing. The CRA tended to focus on low and moderate priced homes, did it not, so it doesn't explain the condo boom & bust in South Florida. The application of the CRA destroyed credit standards for loans and gave implicit Treasury backing to the subprime market by having Fannie and Freddie buy the subprime loans. This didn't stay contained to one segment of the market, but applied to all of it. Fannie and Freddie bought the liars loans whatever they were for. So a huge amount of new credit poured into the housing market, which naturally created a bubble.

To: cirrus who wrote (279635)	11/10/2008 11:22:05 AM
From: TimF	1 Recommendation Respond to of 793756

Obviously the capital gains reductions, since it applied only to primary homes, didn't cause a massive bull market for housing. Not obvious at all. There are a lot of homes that are "owner occupied" or "primary" homes, and a lot of money went to buy them. Also even people buying investment homes planned to sell them on to others, often people who would be buying a home to live in. Imposing a tax on almost all forms of investment, but making it zero for buying a house that you live in, creates a fairly big incentive to buy a house rather than rent, esp. when you can deduct the interest from borrowing for the house as well. The CRA tended to focus on low and moderate priced homes "Tended to" isn't "only dealt with". What gets considered low or moderate went up along with the rest of the market so higher and higher price homes fell under the CRA.. And if the low to moderate house prices aren't pushed up as well then people have an incentive to go for a slightly less desirable house to save a lot of money. In your opinion, is there a singular smoking gun No. Not only is there a long list of government policies, enacted over decades, that contributed to the problem, it can't even be blamed entirely on those policies. Bubbles can happen even without government encouragement, and this one may have happened even without the perverse incentives and distortions of the market created by the government. It probably wouldn't have been as bad, but it easily may have happened anyway. (Not "would have happened" but "may have happened".) But if it did I don't think it would have been as bad, esp. if you also include the actions of the fed when considering government actions.