The Democrats and liberals among Wealth Daily's readership aren't going to like this article.
That's because I'm about to dispel a longstanding belief among partisan Democrats... especially among the more naive.
And that is - the Democrats were a willing party to the current economic crisis. (Don't worry... George W and the neocons are responsible for the trillions spent in the never-ending whatever that is in Iraq and Afghanistan, but I'll save that argument for another day.)
Here's the proof.
This is an article from the New York Times dated September 30, 1999...
How does that make you feel???
Now, you're constantly hearing spin in the media and from politicians about how the current economic situation is a result of "free market failure."
Nothing could be farther from the truth.
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Let me state for the record... THERE IS NO FREE MARKET IN AMERICA.
The market in the U.S. is heavily regulated and manipulated.
The housing bubble was the result of a massive government stimulus plan. Right after 9/11, the U.S. Treasury and U.S. Federal Reserve cut rates to historic lows and increased money supply to obscene levels.
Couple that with the push for more home ownership... and what you get is a toxic brew of government sponsored economic activity.
As Ron Paul has said thousands of times (and he's been vindicated 1000x over), the free market would never have let rates drop as low as they did after 9/11.
You see, one of the primary components of a healthy, functioning free market is risk.
Risk is necessary to weed out bad and irrational actors.
When you start handing out what is essentially free money and allowing borrowers to take out mortgages with $0 down, you eliminate risk. And when that happens, you're indicating that there's no consequence of action.
That's why so many homeowners are so willing to walk away from their homes, because they have no skin in the game. They lose nothing if they allow their home to go into foreclosure.
Had these same homeowners put 10% down, I guarantee they'd be less willing to walk away from that investment.
But trying to explain that to a socialist is like trying to tell somebody from Philly that Brooks Robinson was the greatest third basemen in history. It's an argument with no ending.
Profitably yours,
Brian Hicks
Publisher, Wealth Daily
You recognize only a small piece of the problem. Creating loan packages that allowed interest only, baloon payments, over valuing the property, and worst of all not verifying the borrowers ability to repay the loan are more likely underlying causes of the current plight. Don't you suppose that greed and the free market had something to do with these!!!!!
Regulation generally comes out of the need to fix what's perceived as broken (in your 1999 example, less affluent Americans not being able to afford a home). It usually happens only after the government is forced into it - ie. as a means to placate the normally politically idle populace.
In a perfect world, we would have honest behavior all around and regulation wouldn't be required. The problem of bad loans was compounded by the financial industry repackaging them as "good" loans. Greed and dishonesty at work.
The other issue is that "risk" is a self-centered computation. The idea of a shared/common value for "risk" is a false premise - especially when it comes to the financial industry and the various ways to mitigate (AIG) and profit from risk.
Our government is inept and in bed with corporations on most fronts. To say it's becoming socialist is completely off base. Decisions are influenced more by corporate vs. individual needs/wants.
Republican or Democrat - it's a different suit on the same lame politician. Until the US (and the world in general) raises it's moral standards, we will continue to be plague by issues like these.
Anybody with a brain would understand who was responsible for the subprime loans.
It's too bad that over 50% of the voters now are idiots and not educated about capitalism and what makes America so great. I would be in favor of giving a test to qualify who can vote and who can't. Or it would also be fair to give taxpayers more votes than non-taxpayers.
Fed are merely assertions. Put up proof showing cause/effect relationships via econometric modeling and testing while allowing for competing answers to emerge is the scientific way to prove your point. Otherwise, you are part of the problem and not part of the solution.
While I agree with the asertion as to the specific policies and pressures previously applied by government and shareholders, I am not sure I can accept the writer's conclusion. As a Trader I need to be confident that markets are Free, Fair and Stable . If I do not believe that, then I must Step Aside. I have not stepped aside because I can still honestly expand my capital with hard work.
It seems the limits of "Laissez Faire" may have been tested , perhaps unintentionally and yes , even with the best of intentions.
I have no doubt the U.S. democracy based market system will prevail as Government and Markets interact to effect the necessary rebalance of interests.
Always appreciate how quickly many Americans express their criticism, fear and aversion to Government involvement in their lives. I guess that more than anything, gives me confidence that U.S. Markets are Free.
Ron, Toronto
Ron
The free market that I hear Wall Street and corporate types describe and demand is no free market at all. It's the one we've had that has impoverished unsuspecting Americans.
It's the one that says government should step aside and let the big money set the rules so as to bar individual entrepreneurs and small startups from competing in the open market. It's the one that allows big money and their army of lobbyists to create regulatory "moats" for them to monopolize market segments. It's the one that allows corporate giants like AIG, Citi, and the rest of them to create, trade and profit from intangible and incomprehensible financial "instruments" that add no value to the economic system. The scams allow these free marketers to suck real assets out of the system in the form of salaries and bonuses paid out to the players before it runs its course.
I'll be willing to hear a lecture on free markets when public corporations are barred from trading anything but tangible goods and services; private parties can trade all the vaporware they choose, at their individual risk.
I'm still waiting for a commentator, blogger or TV talking head to explain what their version of free market is. Maybe that should be your next commentary.
However the implication that you extract from the 1999 article is a bit different than the reality.
I) The sub-prime finanical companies were already providing loans but at a higer interest rate. The only change was that Fannie Mae would now provide funding. The legislation was attempting to reduce interest rates - not qualify non qualifying individuals (big distinction unless of course there is an axe to grind)
II) No where did it indicate that if the financial institutes that currently funded the subprime loan would not take the risk that Fannie Mae would take the risk - rather it's purpose was to provide funding for the sub-prime loans which it had not previously provided - now this would be significant except - the majority of funding for the loans made between 2000 and 2007 did not come from Fannie Mae
III) The vast majority of subprime loans made (per Mr Mortgage) were not to low income people - they were made to individuals that could not purchase at such a high price - not low income and minorities.
Since the intent of the program was to reach to low income and minorities and the program was misused by bankers and wall street to cover all income level individuals that did not qualify for high priced homes any other way, I would conclude that your analysis sucks - it is a red herring that I believe misleads people into beliving that "the democrats or liberals" are really responsible.
The program was intended to help LOW INCOME and MINORITIES considered to be low income - but it did not and was misused by wall street to sell as many loans as they could and then turn around and blame someone (something) else
One additional argument can be made - and should. The program ran under W and the executive branch is responsible for enforcing the laws passed by congress - gee where was W? Why was this translated by W's administration to mean that it is OK to sell subprime loans to anyone that could not qualify for a conventional load and ignore the legislation purpose - for low income - except the loans did not go to low income - gee - and I will remind you that the republicans controlled congress through 2006.
So the Republicans run roughshod over legislation and now claim it was someone else - as usual - and you carry this as news analysis.
I am really sorry you are unable to see what transpired in front of you. Yes, this little change was used as an execuse - nothing more to allow wall street to actually make tons of money and yes they did - and when it ended badly - to place blame on the Democrats and liberals
what a game - and you fell for it.
Now if you really want something to sink your teeth into try this
When interest rates went down in the early 2000's, wall street and the banksters used this opportunity to sell more loans. Wall street needed the loans to make money and so did the banks.
Now that it did not work out - let's blame something/someone else for our poor judgement and greed
No the blame lies all around us in many differnt corners and you pick this - what a die hard republican or libertarian you must be (but being that way really screws up your analysis).
POLL TO SEE WHO IS WALKING AWAY FROM THIER HOMES....
GO BACK TO WHERE MORTAGES WERE HAD FOR NO % OR COLLATERAL DOWN....
THEN GET PERCENTAGE OF WALKAWAYS..
ONES WHO DON T HAVE ANY THING TO LOSE
AND THOSE WHO DID...IE (lost jobs,illness,divorces,banruptcy, etc)
WE WHO TRY TO DO IT RIGHT GET PENALIZE...OH YEA,THEY JUST RAISED MY RESTATE TAXES UP ABOUT $300.00
1/01/09 AND WILL GO UP NEXT 1/01/10 ABOUT 400-500 BECAUSE OF PASSED SCHOOL LEVY
and restate market prices are down?