Friday, May 08, 2009

Congress shares the blame for the financial crisis

While politicians and the press are busy blaming bankers for all our current economic ills, The Economist says the government needs to share much of the blame:
Governments spent a fortune encouraging people to buy houses. That was a mistake they now risk repeating

BANKERS, frauds, predatory insurers: there has been a stampede to punish the villains of the global meltdown. Yet one culprit is not only rarely seen as an offender, but is also being cosseted and protected. Governments’ obsession about home ownership has contributed as much to the meltdown as any moustache-twirling financier.

The bust began in America’s housing market and soon spread to government-sponsored institutions created to increase home ownership, Fannie Mae and Freddie Mac. Part of the problem came about because of policy. In most rich countries the state subsidises private housing. ...

Government backing sucked money into housing, boosting prices. Since millions use their homes as collateral for general loans, the house-price boom also exaggerated the consumer boom while it lasted, and amplified the bust when that came. Perversely, public policy even undermined the very things governments were trying to encourage. Housing policy aims at boosting savings. Yet home-equity loans and “negative amortisation” mortgages boosted spending.

In their efforts to stem the financial crisis, governments have thrown money at everything, including housing. Some of this is justified, but they are making their ultimate task harder. The state should in the medium term be aiming to slash subsidies for housing. ... There is no argument for a tax break worth, in practice, ten times as much to the rich as to the poor.
The Economist has more on the subject here.

1 comment:

  1. I dont care to blame them for what has happened. I just dont want them to try to keep prices astronomical. The longer they try to keep the prices higher, the longer I have to put off buying a home.

    Finally prices in rockville, bethesda and potomac are dropping! The rate things are dropping, I will be able to buy next year or the year after....but really thats up to congress.