Government Responds to Economic Woes By Making More Bad Mortgage Loans

Liberty and Power at the History News Network ^ | November 22, 2009 | Robert Higgs

[Captain Kirk]

Since the summer of 2008, the U.S. Treasury and the Fed have initiated a welter of new spending, lending, and subsidizing programs ostensibly aimed at steming the recession that began early in that year and deepened quickly in its last quarter and in the first quarter of 2009. Among the most notable of these programs have been attempts to prop up the real estate market and the residential construction industry, where the Fed’s easy-money policies in the first half of the present decade induced lenders to make millions of mortgage loans to home buyers who would not have qualified for such loans if traditional underwriting standards had been applied.

During the housing bubble, however, with congressional backers goading Fanny Mae, Freddie Mac, and other lenders, caution was thrown to the wind, and loans were extended to home buyers who had little more than a pulse as a qualification. People who believed that real estate prices would never fall did not worry much about the great volume of dicy credit being extended to house buyers – for the moment everybody seemed to be getting rich effortlessly with little or no risk. However, people who believed that real estate prices would never fall were fools, and when the Fed began to back away from its easy-money policy and interest rates began to rise, real estate prices began to fall, mortgage delinquencies and foreclosures began to rise, and before long the entire house of cards began to collapse: house prices dropped drastically, as did the pyramid of financial derivatives built atop the mountain of mortgage loans, and in quick succession some of the world’s largest banks and other financial-services companies went belly up. Some, including Fannie, Freddie, and AIG, were taken over by the government or the Fed; hundreds of others were

[Captain Kirk]

bttt

[rabscuttle385]

*Ping!*

[Let's Roll]

Well, of course there might still be a few people out there who would prefer to cook meth in the privacy of a home they ‘own’ instead of rent or squat in.

Our government doesn’t want the economy or the American middle class to recover.

[rabscuttle385]

When Bush and the GOP spoke of an "ownership society," we all thought that he meant that more American households would own their own homes.

Eight years later, it turns out that what he really meant was that more American households would be OWNED by the biggest banks, hedge funds, and various shady financial institutions, not to mention the central banks and governments of various hostile foreign Powers.

Thanks for helping the liberal Democrats sell us all down the River and into slavery, RINOs!

And I sincerely believe, with you, that
banking establishments are more dangerous
than standing armies; and that the principle
of spending money to be paid by posterity,
under the name of funding,
is but swindling futurity on a large scale."
THOMAS JEFFERSON, 1816

[FromLori]

[RonInNaples]

This and something my wife read in the paper just make me shake my head and wonder if ANY politician is capable of living in the real world or thinking like the mostly middle class people that vote for them.

My wife read an ad from an auto dealer (can’t remember which one) who promised everyone a loan - even if you were receiving unemployment. So, between the Feds I can get a new home and I can buy a new car. Say, 30-year mortgage on the house and let’s go with a 6-year loan on the car since we’re receiving unemployment and our savings is all but gone. Now my unemployment will run out in February, well August now with the newest extension. We’ve both returned to school for re-training in order to find jobs in the only two fields here in central IL that have growth but neither of us will finish until 2011.

So, we can get that house and car right now, knowing we can’t really afford either of them and damn sure won’t be able to afford them once our unemployment benefits expire. But that’s OK, ‘cause it stimulates the economy? How? Once we, and any other idiots foolish enough to do this can’t pay, aren’t we setting the economy up for another cycle of repos and foreclosures? I must not understand economics as well as I thought I did in spite of all my reading on the subject, or else government accounting escapes me. Am I missing something here?

[aberaussie]

And the people buying the 300K house next door to us apparently are not expected by FHA to bring any money to closing.... I don’t understand that. No one has learned anything. And the cars I see them show up at inspections and walk throughs are, well, pricey.

[RonInNaples]

Exactly. No savings = no money down on the home or the car. So that has to be a 100% mortgage, more likely 125%. No equity so when they can’t pay, they just walk away and do it again? Same with the car. No down payment, so they finance the car, taxes, and fees. They start off both transactions upside down. Isn’t that how we got where we are right now? Freddie and Fannie making all those loans to unqualified buyers? Just seems like you’re creating another cycle/bubble that means we repeat this mess again a few years down the line.

[tinamina]

Common sense says ...
Where is the common sense in our government? I have seen not a glimpse of one person in the public employ who may have any...
and the voters, well howdy!

[bamahead]

Libertarian ping! Click here to get added or here to be removed or post a message here!
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[Landru]

Now THIS one's a real shocker, bama.
Gotta sit down, catch my breath. LOL

[secretagent]

When this twisted creation proves incapable of living and breathing and breaks down in agonizing spasms of business losses, bankruptcies, and unemployed labor, the preeminent need is for a restructuring of the economic process: industries and locations mistakenly stimulated by bad policies must shrink; and industries and locations previously starved for inputs must receive them, as investors and workers abandon the enterprises now revealed as losers and seek opportunities elsewhere for more profitable employment of their resources. Cutting short this process of liquidation and redirection by implementing more of the same distortive policies that created the mess in the first place only insures that the restructuring will take longer and be more painful.

Sound analysis, sounds like to me.

[Gondring]

Thanks for the ping.

I’m getting so sickened by these stories. I do hope every American who “gets it” is spreading the word to those who don’t.

[sickoflibs]

RE :” Eight years later, it turns out that what he really meant was that more American households would be OWNED by the biggest banks, hedge funds, and various shady financial institutions, not to mention the central banks and governments of various hostile foreign Powers.”

Thanks for the GWB dig. Don’t forget all the phony “ President GWB tried to warn democrats (in minority) fourteen times that these loans were risky ” excuses while he was pushing banks to loan to illegals so they could buy some of the new houses they were building.

Ron Paul and Liberals were right about Bush, government/corporations run the economy, then privatize the profits to large investors, socialize the losses to us. Now libs are blaming Geitner for this(I love it) , taking GWB place.