It is not Obama’s fault that home sales are dropping, though it is his fault that they did not drop sooner. Why is it bad that the sales of home and home prices are dropping?
Yes, it eats up bank collateral and destroys individual’s home equity values. But that is exactly what happens when a bubble bursts and it is what should happen. To move forward from a financial collapse we need to clear away the debris.
Instead of propping up inflated values we need adjust to the fact that home value appreciation near 10% is not normal. What we got used to was an induced high. What we are experiencing is financial sobriety.
We are seeing that even our huge national government cannot keep a fake market alive forever.
We should instead create a market where housing has to compete fairly with other investment alternatives without the subsidies, tax breaks, and political meddling.
Housing will not drop to zero. At some point they will reach a point where the industry will recover. For every dollar one person loses on a home another will gain. For a president so keen on redistribution this should be welcomed.
“The bankers fervently believed their new structures and systems would better ensure the soundness of their loans than old- fashioned credit analysis and human judgment, fraught as ever with human error. Having crafted a system that seemed to relieve them of responsibility for making good judgments, they naturally proceeded to make an enormous amount of bad loans. Similarly, the government did not know the bank’s financial condition not because the banks were hiding it but because the banks themselves did not know. Believing that statistical systems could transcend the need for human judgment, the bankers created and the regulators encouraged financial institutions with balance sheets no one could judge.”
“Finally, when the fraud began to be revealed by its consequences, the government turned crisis into catastrophe. It was the government that actually collapsed stressed credit markets, largely by treating fraud as misfortune. Transfixed by the same ideology of irresponsibility, the government coddled those who perpetuated the fraud and concentrated its ire on those who exposed it, especially short sellers. (Short sellers are to financial markets what free speech is to political markets.)”
from Panic – The Betrayal of Capitalism by Wall Street and Washington by Andrew Redleaf and Richard Vigilante
“Prevailing in Washington as on Wall Street were the most vile and self destructive assumptions of anti-capitalists everywhere who imagined they could wield capital even while abandoning the principles that created it; that systems could substitute for the moral standards they once embodied; or that men who lost trillions of dollars of other people’s money might somehow recover it if only the government would give them trillions more. Crony capitalists on the right and socialists on the left united as always behind their most fundamental belief, that wealth is to be captured by power and pull rather than created in the minds of men.”
from Panic – The Betrayal of Capitalism by Wall Street and Washington by Andrew Redleaf and Richard Vigilante
To blame the mere shortage of cash for the evils caused by incompetence and corruption is the favorite lie of socialists and crony capitalists everywhere. Socialists always say there is no problem of inequality or poverty that can’t be solved with cash. It is cash alone that separates the rich from the poor- not talent or skill or hard work or thrift. Similarly, in the socialist view it is only access to capital that separates “greedy” and “monopolistic” (read “successful”) firms from the thousand flowers that would bloom if only the government would create a “level playing field” and “enforce competition.”
After the socialists becpme the government and begin evolving into crony capitalists, their favored beneficiaries- Soviet state-owned factories, Japanese banks, Fannie and Freddie in the United States- are always described as faultlessly devoted, idealistic, and hardworking, or at least essential. If they underperform (and they always underperform), it is only because they are short of cash- which the government then always provides in some form or another.
From Panic by Andrew Redleaf and Richard Vigilante
The political stereotype is that the Republicans are the party of big money and Democrats are the party of the little guys. But the reality is something else.
Crony capitalists are those who use Washington to create a system that they can game, to use against their smaller competitors. I have said before in this blog, ‘crony capitalism is to capitalism as National Socialism is to Socialism.’ Crony capitalism is not a free market. They have bastardized the word ‘capitalism’ the same way that the closed minded form of modern political ‘liberalism’ bastardized the meaning of open minded ‘classical liberalism’.
Mona Charen makes that point again in the National Review Online
Who’s More Irresponsible, Wall Street or State Governments?
Excerpts:
Anecdotes are not evidence, but consider this: According to the Center for Responsive Politics, Democrats received $11.3 million in contributions from hedge funds in 2008. Republicans got $5.9 million. Some critics of the Dodd bill note that it would give broad discretion to the FDIC and a new regulator to decide which firms would be bailed out and which would not. That isn’t so much preventing another crisis as institutionalizing “too big to fail.” The moral hazard problem — i.e. encouraging risky practices with the implicit or explicit promise of a bailout — remains.
Furthermore, the Dodd bill — and the Democrats’ narrative — completely omits the role of government in the financial debacle. Neither Fannie Mae nor Freddie Mac is mentioned in the legislation. But the incentives created by government, specifically the sustained push through law and regulation to provide mortgages to more and more uncreditworthy borrowers, created the conditions for the housing bubble and for its eventual crash.
