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How Government Caused the Mortgage Mess

October 4, 2008 by GayPatriotWest

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.

Filed Under: Big Government Follies

Comments

  1. Swampfox says

    October 4, 2008 at 3:21 pm - October 4, 2008

    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.

  2. sierra says

    October 4, 2008 at 3:45 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.

  3. V the K says

    October 4, 2008 at 3:50 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.

  4. SoCalRobert says

    October 4, 2008 at 5:25 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.

  5. Swampfox says

    October 4, 2008 at 6:08 pm - October 4, 2008

    Was Kemp for the program to give loans to people that couldn’t afford them?

  6. michael says

    October 4, 2008 at 10:30 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.

  7. SoCalRobert says

    October 4, 2008 at 11:09 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.

  8. Rocket says

    October 5, 2008 at 12:41 am - October 5, 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?

  9. Rocket says

    October 5, 2008 at 12:48 am - October 5, 2008

    oops..that’s the Community Reinvestment Act..sorry for the typo.

  10. V the K says

    October 5, 2008 at 1:31 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.

  11. ThatGayConservative says

    October 5, 2008 at 2:29 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?

  12. ThatGayConservative says

    October 5, 2008 at 2:31 am - October 5, 2008

    BTW my investments grew, albeit slowly, because I took responsiblitiy for it.

  13. michael says

    October 5, 2008 at 11:13 am - October 5, 2008

    the level of intellectual honesty and economic knowledge in here is amazing.

  14. Vince P says

    October 5, 2008 at 11:33 am - October 5, 2008

    Not that amazing since you didn’t correct any of it

  15. V the K says

    October 5, 2008 at 2:48 pm - 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.”

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