How Government Caused the Mortgage Mess
A reader chanced upon a passage in Henry Hazlitt’s Economics in One Lesson where that celebrated economist predicted today’s mortgage crisis:
Government-guaranteed home mortgages, especially when a negligible down payment or no down payment whatever is required, inevitably mean more bad loans than otherwise. They force the general taxpayer to subsidize the bad risks and to defray the losses. They encourage people to “buy” houses that they cannot really afford. They tend eventually to bring about an oversupply of houses as compared with other things. They temporarily overstimulate building, raise the cost of building for everybody (including the buyers of the homes with the guaranteed mortgages), and may mislead the building industry into an eventually costly overexpansion.
This book first appeared in 1946. Wow how prescient was this man. Too bad we don’t have more such individuals in government. And too bad more elected officials aren’t familiar with his work.
16 Comments
RSS feed for comments on this post.
Sorry, the comment form is closed at this time.
Isn’t that basic economics 101? I have been reading Instapundit today, Glenn Reynolds says that the unfunded State pension fund of Illinois might be has much as 44 billion.
Comment by Swampfox — October 4, 2008 @ 3:21 pm - October 4, 2008
The same excellent book also features a simple formulation that has been much on my mind these last few weeks: credit is not something that can be given to you; you can only earn it.
Comment by sierra — October 4, 2008 @ 3:45 pm - October 4, 2008
Some well-meaning knobs thought that if you gave people home ownership, personal responsibility would follow. Nature demands that it work the other way around, and nature does not long tolerate fools.
Comment by V the K — October 4, 2008 @ 3:50 pm - October 4, 2008
Nature demands that it work the other way around, and nature does not long tolerate fools.
VtK: well said. I must point out that the well-meaning knobs are a bipartisan lot. I seem to remember hearing a lot of this “home ownership as a magic bullet” in the 80s from people like Jack Kemp.
Comment by SoCalRobert — October 4, 2008 @ 5:25 pm - October 4, 2008
Was Kemp for the program to give loans to people that couldn’t afford them?
Comment by Swampfox — October 4, 2008 @ 6:08 pm - October 4, 2008
[…] not that we weren’t forewarned about the dangers of government-subsidized […]
Pingback by Obama: Socializing America — one “idiot” at a time « Over-the-Hill Oracles — October 4, 2008 @ 9:20 pm - October 4, 2008
ya, VTK, and how much did your IRA’s etc lose? and how much they didn’t with the current example of corporate welfare. you socialistic pig.
Comment by michael — October 4, 2008 @ 10:30 pm - October 4, 2008
#5: it’s been a long time but I think the game in those days was to “sell” public housing to those that live there.
Comment by SoCalRobert — October 4, 2008 @ 11:09 pm - October 4, 2008
I will never understand why McCain is not hitting hard on the Democratic mess with Fannie/Freddie, which is at the root of the entire financial mess.
To me it is a huge blunder and still astounds me that McCain started down to hit Nobama on it and then dropped the ball.
And hit Nobama on Acorn that he helped win the lawsuit that led to the furtherance of the Jimmy Carter/Clinton mess of the Community Redevelopment Act of creating sub prime loans…….and just think Nobama and the Dems with their lack of judgment and bad judgment led to this mess and you want to put him in the White House?
Marxism/Socialism here we come…and when is McCain going to start to hit Nobama on his Marxist ways?
Comment by Rocket — October 5, 2008 @ 12:41 am - October 5, 2008
oops..that’s the Community Reinvestment Act..sorry for the typo.
Comment by Rocket — October 5, 2008 @ 12:48 am - October 5, 2008
Michael’s inane comments make me wish I could put pictures in the comments because sometimes a picture just says it so much better.
Comment by V the K — October 5, 2008 @ 1:31 am - October 5, 2008
#6
What kind of ignorant wretch gets bent out of shape over the performance of long term investments over such a relatively short period of time?
Comment by ThatGayConservative — October 5, 2008 @ 2:29 am - October 5, 2008
BTW my investments grew, albeit slowly, because I took responsiblitiy for it.
Comment by ThatGayConservative — October 5, 2008 @ 2:31 am - October 5, 2008
the level of intellectual honesty and economic knowledge in here is amazing.
Comment by michael — October 5, 2008 @ 11:13 am - October 5, 2008
Not that amazing since you didn’t correct any of it
Comment by Vince P — October 5, 2008 @ 11:33 am - October 5, 2008
This book first appeared in 1946.
There’s the problem. In 1946, money was only loaned to people who could pay it back. After the Civil Rights movement, this became known as “redlining,” and denying credit to people who would never pay it back was labeled “racist.”
Comment by V the K — October 5, 2008 @ 2:48 pm - October 5, 2008