Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

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

To: KLP who wrote (296861)	3/18/2009 12:31:17 PM
From: Geoff Altman	2 Recommendations Read Replies (1) \| Respond to of 794309

(bottled up rant....) Speaking of Sowell...<g> This is cause and effect that lead to our current predicament, everything else is a distraction that keeps Americans off balance and unable to see a simple fact. This crisis isn't due to natural free market events, it was politician made and while there were plenty of people rooting on the sidelines the driving force of this screw up started with Carter and expanded to the point of having teeth with Clinton.... then, even Bush spoke praisingly of what was being done. Meanwhile, the Committee on Banking, Housing, and Urban Affairs facilitated and accelerated the entire process while making their campaigns and those involved in GSE rich. I really think that this problem requires a certain group to pay, specifically, the Committee on Banking, Housing, and Urban Affairs. It goes beyond negligence when a committee who's job it is to watch for problems in the housing market is warned repeatedly from 2002 on and who's members were still claiming there wasn't a problem as late as 2007. The entire committee should have been removed and replaced long ago, we are supposed to be a meritocracy aren't we?... False Solutions and Real Problems Thomas Sowell Wednesday, March 18, 2009 Someone once said that Senator Hubert Humphrey, liberal icon of an earlier generation, had more solutions than there were problems. Senator Humphrey was not unique in that respect. In fact, our present economic crisis has developed out of politicians providing solutions to problems that did not exist-- and, as a result, producing a problem whose existence is all too real and all too painful. What was the problem that didn't exist? It was a national problem of unaffordable housing. The political crusade for affordable housing got into high gear in the 1990s and led to all kinds of changes in mortgage lending practices, which in turn led to a housing boom and bust that has left us in the mess we are now trying to dig out of. Usually housing affordability is measured in terms of how much of the average person's income it takes to cover either apartment rent or a monthly mortgage payment. There were certainly places here and there where it took half a family's income just to put a roof over their heads. Many such places were in coastal California but there were a few others, here and there, on the east coast and elsewhere. But, vast areas of the country in between-- "flyover country" to the east coast and west coast elites-- had housing prices that took no larger share of the average American's income than in the decade before the affordable housing crusade got under way. Why then a national crusade by Washington politicians over local problems? Probably as good an answer as any is that "It seemed like a good idea at the time." How are we to be kept aware of how compassionate and how important our elected officials are unless they are busy solving some problem for us? The problem of skyrocketing housing prices was all too real in those places where this problem existed. When you have to live on half your income because the other half goes for housing, that's a real downer. Almost invariably, these severe local problems had local causes-- usually severe local restrictions on building homes. These restrictions had a variety of politically attractive names, ranging from "open space" laws and "smart growth" policies to "environmental protection" and "farmland preservation." Like most wonderful-sounding political slogans, none of these lofty goals was discussed in terms of that one four-letter word that people do not use in polite political society-- "cost." No one asked how many hundreds of thousands of dollars would be added to the cost of an average home by "open space" laws, for example. Yet empirical studies have shown that land-use restrictions added at least a hundred thousand dollars to the average home price in dozens of places around the country. In some places, such as coastal California, these restrictions added several hundred thousand dollars to the price of the average home. In other words, where the problem was real, local politicians were the cause. National politicians then tried to depict this as a national problem that they would solve. How would they solve it? By pressuring banks and other lenders to lower their requirements for making mortgage loans, so that more people could buy houses. The Department of Housing and Urban Development gave the government-sponsored enterprise Fannie Mae quotas for how many mortgages it should buy that were made out for people for low to moderate incomes. Like most political "solutions," the solution to the affordable housing "problem" took little or no account of the wider repercussions this would entail. Various economists and others warned repeatedly that lowered lending standards meant more risky mortgages. Given the complex relationships among banks and other financial institutions, including many big Wall Street firms, if mortgages started defaulting, all the financial dominoes could start falling. These warnings were brushed aside. Politicians were too busy solving a national problem that didn't exist. In the process, they created very real problems. Now they are now offering even more solutions that will undoubtedly lead to even bigger problems.