Wednesday, April 08, 2009

Who Did the Housing Bust, Anyway?

P-Mac notes an article which mentions monetary expansion fueling the Mortgage Bomb.

Sounds vaguely familiar...

“The 2001 recession might have ended the bubble, but the Federal Reserve decided to pursue an unusually expansionary monetary policy in order to counteract the downturn. When the Fed increased liquidity, money naturally flowed to the fastest expanding sector. Both the Clinton and Bush administrations aggressively pursued the goal of expanding homeownership, so credit standards eroded. Lenders and the investment banks that securitized mortgages used rising home prices to justify loans to buyers with limited assets and income. Rating agencies accepted the hypothesis of ever rising home values, gave large portions of each security issue an investment-grade rating, and investors gobbled them up.”

All true. The stats quoted on my post were startling:

Greenspan was printing money like a madman--increasing M3 by 17%++ since 2002. We'll never really know that, because Greenspan also made M3 a secret at about that time

Well, whatever. The question which McIlheran raises is 'whether home ownership, in and of itself, is an ideal worth pursuit at any cost.'

Seems to me that the answer is a resounding "Not really."

The other question is this: "whether the Greenspan/Ayn Rand thesis of 'rational decisions' is defensible following the irrational borrowing/lending spree is proven true?"

...a far more interesting question, indeed.

Greenspan was a believer that, in general, people make rational decisions on finances.


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