"Waiving down-payments requirements, dropping lending standards, allowing predatory lenders to flourish — that is what is the underlying cause"

Another sensible view about home ownership from The Big Picture:

"Let’s start out with a brief excerpt from Bailout Nation:

From Reagan to George W. Bush, each President of the past 25 years bears some responsibility for contributing to the belief that we can let markets govern themselves.

Of the four Presidents over that period of time, President George W. Bush is the one with the seemingly greatest culpability. Not just because this crisis happened on his watch — although that is reason enough to give him a fair share of responsibility. More significantly, the basis of his culpability is that he shared Greenspan’s and Gramm’s radical belief system — that markets could police themselves, and that all regulation was inherently bad. This philosophy colored all of the President’s appointments to key supervisory positions, as well as his legislative agenda.

That philosophy, and the executive, administrative and legislative acts, including political appointments, is where we should focus our ire at the soon the be former-President Bush. The belief system that leads to the conclusion that really bad behavior in the corporate world needs no proscribing is where you should look to place blame.

That Bush had as a goal increased home ownership is, quite bluntly, irrelevant. It is a worthy goal, and certainly one that could be achieved without forcing the collapse of the financial system.( I AGREE )

Indeed, as the chart at right shows (source: NYT), home ownership has increased every year since 1994. Funny, from that year and for each of the next 10 years, there was no collapse. You have to ask yourself why. No, the 1997 Tax Break, did not, as the NYT implied yesterday, Help Cause Housing Bubble. Home ownership was rising years before that went into effect.( TRUE )

What Bush did differently than prior Presidents was that he genuinely believed that regulations proscribing bad corporate behavior were unnecessary. It was that ruinous belief system, one he shared with other key players, that led to the crisis.( TRUE )

In fairness to Bush, many of the really bad policies that led to the boom and bust of Housing, and the collapse of credit, were in place before he was sworn into office. In particular, the repeal of Glass Steagall (Gramm-Biley-Leach Act), and the Commodities Future Modernization Act (CFMA), were both heavily lobbied for by the industry, sponsored by Phil Gramm, and passed by a Congress that didn’t bother to read them( TRUE ). They were both signed into law by Bill Clinton. That set of legislation is where you begin to find answers to The Reckoning.

Consider:

“Former Presidents Clinton, George H.W. Bush, and Reagan all have some responsibility, but far less. Bush Senior is probably the least culpable. Reagan did not reappoint Fed Chair Paul Volcker, and replaced him with Alan Greenspan. Regardless of other actions, this alone haunts his legacy, and gives the Gipper some degree of responsibility.

While some partisans have tried to paint the crisis a purely Republican debacle, history informs us otherwise. Yes, the GOP did control Congress from 1994 to 2006. However, President Clinton, a Democrat, bears a significant amount of responsibility too. He and his Treasury Secretaries, Robert Rubin and Lawrence Summers, each supported very limited regulation of free markets. Clinton, Rubin and Summers are one step behind W. in the hierarchy of proximate causes of the debacle.” (Bailout Nation) ( THAT'S TRUE. I DID TOO )

The requisite Fannie Mae/Freddie Mac discussion in the article is simply silly. Yes, FNM/FRE were cogs in the housing machinery, yes, they were corrupt organizations. No, they were not a proximate cause of the boom/bust/collapse( ALL TRUE ). For those of you who keep asking why I emphasize this, this article is why.

Increasing home ownership in America is a legitimate political goal. Waiving down-payments requirements, dropping lending standards, allowing predatory lenders to flourish — that is what is the underlying cause of boom bust and collapse.( I AGREE COMPLETELY )

Once again, we relearn that worthy ends do not justify foolish means."

"Consider that government intervention might have led banks and other organizations to take on risks that they never should have."

Via Cafe Hayek, a good article by Steven Horwitz:

"However well-intentioned the attempts were to extend homeownership to more Americans, forcing banks to do so and artificially lowering the costs of doing so are a huge part of the problem we now find ourselves in."

Don't buy it. Poor loans are poor loans.

"What's interesting is that the rise in prices affected most strongly cities with stricter land-use regulations, which also explains the fact that not every city was affected to the same degree by the rising home values."

Fine. Houses are more expensive. Doesn't justify poor loans.

"While all of this was happpening, the Federal Reserve, nominally private but granted enormous monopoly privileges by government, was pumping in the credit and driving interest rates lower and lower. This influx of credit further fueled the borrowing binge. With plenty of funds available, thanks to your friendly monopoly central bank (hardly the free market at work), banks could afford to continue to lend riskier and riskier."

Sorry. Wrong again. Poor loans are poor loans.

"Yes, banks were "greedy" for new customers and riskier loans, but they were responding to incentives created by well-intentioned but misguided government interventions. It is these interventions that are ultimately responsible for the risky loans gone bad that are at the center of the current crisis, not the "free market."

Here he's absolutely correct. This implicit guarantee by the government and Fed to intervene can explain why poor loans might be bet on. The risk is lowered.

"It is when corporations can use the state to rig the rules in their favor that the negative effects of their power become magnified, precisely because it has the force of the state behind it. The current mess shows this as well as anything ever has, once you realize just what a large role the state played. If you really want to reduce the power of corporations, don't give them access to the state by expanding the state's regulatory powers. That's precisely what they want, as the current battle over the $700 billion booty amply demonstrates. "

This is true. The government had acquiesced to these implicit and explicit guarantees, which these banks and investors wanted.

"The eventual bursting of the bubble and their subsequent losses are, to many of us, their just desserts for rigging the game and eventually getting caught. To reward them again for their rigging of the game is not just morally unconscionable, it is very bad econonmic policy, given that it sends a message to other would-be riggers that they too will get rewarded for wreaking havoc on the US economy. There will be short-term pain if we don't bailout these firms, but that is the hangover price we pay for 15 years or more of binge lending. The proposed bailout cannot prevent the pain of the hangover; it can only conceal it by shifting and dispersing it among the taxpayers and an economy weakened by the borrowing, taxing, and/or inflation needed to pay for that $700 billion. Better we should take our short-term pain straight up and clean out the mistakes of our binge and then get back to the business of free markets without creating an unchecked Executive branch monstrosity trying to "save" those who profited most from the binge and harming innocent taxpayers in the process."

Here, he's completely wrong. Guarantees are guarantees. We need to honor them. As well, the system was so out of whack that the fallout of a hands off policy is being extraordinarily minimized. Just check out the bankruptcy of Lehman. This is pure wishful thinking, which we've had enough of.

"My point is that hoping that having the "right people" in power will avoid these problems is both naive and historically blind."

Put this way, I never understand this comment. It should apply to the police, courts, military, etc., and yet we need them. It is much better to say that regulations rely on regulators and can't be relied on to solve all our problems.

"Consider that perhaps government intervention, not free markets, caused profit-seekers to undertake activities that harmed the economy. Consider that government intervention might have led banks and other organizations to take on risks that they never should have. "

This is true.

"Consider that government central banks are the only organizations capable of fueling this fire with excess credit. And consider that various regulations might have forced banks into bad loans and artificially pushed up home prices. Lastly, consider that private sector actors are quite happy to support such intervention and regulation because it is profitable. "

At most, these are necessary, but not sufficient conditions. They do not explain the poor investments because they do not minimize risk. At best, they increase profits, but all profits must be reasonably judged by their risk. Focus on the risk.

The solution going forward is to not have the government subsidizing risk, or, where it does, restrictions on the risk that is allowed. This is not impossible.