Just a short 250 word piece I wrote for the newspaper. It is in a section called "In this Corner" basically one person's view against another. The subject is whether or not Greenspan and the bush admin is responsible for our current economic problems.
As many American’s went to the voting polls yesterday in order to pick a candidate who will hopefully fix the major economic problems we are now facing. There are many who are also wondering “what happened?” There are several reasons for our economic problems but one of the biggest is the very loose monetary policy headed up by the former head of the FED Alan Greenspan. Mr. Greenspan’s extremely low interest rate policy from December 2000 to June 2004 of one percent is one of the underlying problems at the root of our economic troubles. By pumping so much money into the market this allowed for frivolous investments in the housing industry which was the beginnings of the massive housing bubble, and we are now just beginning to see the effects of that burst. People flocked to the mortgage companies to invest in homes they couldn’t afford on a subprime i.e. creative financing, or in other words interest rates were not fixed and as the rates changed people at the bottom rung realized they were going to have to default on their loans. This caused a ripple throughout the market which we are still reeling from. My opponent may ask why some banks would be willing to invest in such bad loans; the reason is simple, government interference into a quasi free market. Greenspan and other pseudo-capitalists may blame this on greedy businessmen but it really comes down to the government policies which promoted unhealthy investments in the first place, such as the Community Reinvestment Act which encouraged risky loans in neighborhoods banks would normally not send their money.
2 comments:
So I am curious about what you think of the bailouts, dude.
While Greenspan's low interest rates may have encouraged some investments with marginal returns and which when financed as ARMs in the property arena would increase default rates, this does not explain why the default rates are so disparate in different states. If the defining issue were Greenspan's Federal Reserve rates, then the default rates should be relatively uniform across the states.
Instead, more than 40% of the defaults are in just two states: California and Florida. Some other states have very elevated default rates also. Most of them are characterized by severe governmental limitations on building, which have so distorted the law of supply and demand that would-be homeowners could not find homes to buy which were within the 2.5 times their annual household income range required for a prime mortgage loan. Hence, many people were forced to become subprime borrowers if they followed the American Dream of owning a home. Sure, they could have done without a home, but that is a real challenge to human nature.
Yes, government did many things to create this home mortgage crisis, but the root cause seems to be its propensity to keep people from building enough homes. The use of force to prevent people from selling their land for the purpose of home building was the key fault. In many a western state, the very excessive government ownership of land also played a role. Land belongs in private ownership and the rights of those private owners to their property should be respected.
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