Mortgage Crisis Shows that Government Regulation Doesn't Work

Discussion in 'Economy' started by Kevin_Kennedy, Nov 3, 2009.

  1. Kevin_Kennedy
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    Kevin_Kennedy Defend Liberty

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    Campaign For Liberty — Mortgage Crisis Shows that Government Regulation Doesn't Work   | by Glenn Jacobs
     
  2. Toro
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    Toro Diamond Member

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    Since the mortgage meltdown was a result of both regulatory and market failure, drawing conclusions from the meltdown that government regulation "doesn't work" is akin to saying the free market "doesn't work."
     
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  3. PLYMCO_PILGRIM
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    PLYMCO_PILGRIM Gold Member

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    I think the proper conclusion to draw is that Government Regulations combined with Greed and political corruption will fail every time ;).
     
  4. Kevin_Kennedy
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    Kevin_Kennedy Defend Liberty

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    The Fed manipulating interest rates is a market failure?
     
  5. dilloduck
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    dilloduck Diamond Member

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    It may be to horrifying to peek behind the cash curtain. You know it ain't pretty.
     
  6. Toro
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    Toro Diamond Member

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    No. That is an example of regulatory failure.

    Packaging thousands of subprime mortgages for purchase as AAA securities when they clearly weren't, giving loans to unemployed homeless people to buy houses, telling people to lie on their mortgage applications, keeping inadequate collateral on structures guaranteeing derivatives that exceed the GDP of the global economy, and excessive debt within structures under the premise that markets are efficient are all examples of market failure.
     
    Last edited: Nov 3, 2009
  7. PLYMCO_PILGRIM
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    There were regulations requiring the banks to give high risk home loans to people whom the banks would have denied if not threatened with penalties and fines by the federal government (equal opportunity lenders). However those regulations did not encourage the banks to have their customers lie on applications.

    So We have regulatory failure due to corrupt politicians and oversight official looking the other way as a result of their greed for political contributions and kickbacks. Plus we have the greed of the banks combined with the greed of the borrowers.

    Perfect storm :).
     
  8. Kevin_Kennedy
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    Kevin_Kennedy Defend Liberty

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    Would any of that have been possible to the degree that it was without the Fed manipulating interest rates?
     
  9. Toro
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    Toro Diamond Member

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    Probably, but the effects would have been far less.

    The Fed is the primary cause of the crisis, IMHO, but there is a lot of blame to go around, including those who acted freely in a private market.
     
  10. Toro
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    The regulations requiring lending had a marginal, if any effect.

    If you believe in markets, then what would have happened if programs like the CRA and the GSEs were the cause of the crisis is that both the homes funded by those loans would have risen faster than average and the loans themselves would have gone bad at a faster rate than the rest of the market. But that did not happen. In fact, the opposite happened. The biggest bubbles occurred primarily in middle class to wealthy neighborhoods funded by non GSE-qualifying loans, in the states where one would generally expect bubbles to occur - CA, AZ, FL, NV. Home prices in poorer areas did not rise as fast, nor did loans default as fast as the biggest bubble areas.

    Therefore, this bubble was driven primarily in the private markets.
     

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