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Source link: http://archive.mises.org/8308/how-fannie-and-freddie-made-me-a-grumpy-economist/

How Fannie and Freddie Made Me a Grumpy Economist

July 21, 2008 by

Fannie and Freddie should be shuttered. Their corporate ownership should be subjected to the Enron treatment, and their assets should be auctioned off to private mortgage guarantors. Also, the Fed’s complicity in this affair needs to be made well known, especially the role of one former Fed chairman who encouraged the use of subprime mortgages in the early 2000s. In hindsight, his statements look like desperate attempts to minimize the adverse effects of his post-9/11 monetary policies and shield himself and the political establishment from the backlash that rightly follows periods of monetary inflation. FULL ARTICLE

{ 18 comments }

fundamentalist July 21, 2008 at 8:44 am

I hate to admit it, but economic history has made me grumpy, too. It’s inevitable. After econ 101, the first thing anyone should learn is economic history. But econ history is a double edges sword: once you learn it, you will see that we have been fighting the same battles and making the same mistakes for about 400 years. The old prophet of Ecclesiastes was correct, “There is nothing new under the sun,” especially where econ is concerned. The US has been marching toward greater socialism for at least the past century, ever since we ceased to be a republic and became a democracy. Every disaster and economic problems is seen as an opportunity for greater state control.

fundamentalist July 21, 2008 at 8:56 am

I just finished reading Hayek’s 1970 article “Can We Still Avoid Inflation.” If some newpaper published it as an editorial, no one would doubt that it was written yesterday and refers to the current crisis. The mainstream econ and politicians haven’t learned a thing in the past 40 years.

Matt July 21, 2008 at 9:26 am

Christopher Westley, Very Good article and almost all needed bases were correctly covered, even the future was correctly put forward.
However you failed to mention the fundamental cause of the problems of Big and Bigger government in our future.
We must face the fact that Government operates on an Ethic. An Ethic that is accepted by the public at large. That Ethic is the Judeo-Christian Ethics of Self-Sacrifice.
Why do you think the word ‘Sacrifice’ is so often used by our present President and Politicians at large?

Sacrifice of the competent to the incompetent, Sacrifice of the productive to the unproductive. Sacrifice of the responsible to the irresponsible etc.
These issues are never discussed and we therefore will continue on this path of thievery through legislation..The public in general will eat it up and they will never know the real cause of their problems….let us pray.

Curt Howland July 21, 2008 at 9:58 am

Good for radio? By Cromm! Why couldn’t you have been on NPR, where all I ever hear is whining sycophants desperate for their government bail-out?

“Oh woe, it’s another market failure! Quick, the people need HELP! Send in the GOVERNMENT!”

Chad July 21, 2008 at 10:01 am

Regarding Matt’s comment, I would think it would be more accurate to say that the “ethics” behind our current system are:

a) Everyone feels entitled to receive something for nothing from the government, even if that “something” has to be forcibly taken from others by that government.

b) Everyone wants the government to somehow take upon itself all the risk involved in their risky behaviors, allowing them to profit when the coin comes up heads but not suffer anything when the coin comes up tails.

These concepts are indicative of the systemic laziness, envy, covetousness, short-sightedness, and irresponsibility so prevalent in our current culture. Judeo-Christian ethics are characterized by a responsible work ethic, self-reliance, and *voluntary* (not government-coerced) charity to those in actual need due to circumstances beyond their control.

There was a time in this country in which receiving any kind of handout from the government (or even private sources) was considered shameful. Now, individuals and businesses practically climb over each other to get in line for the latest handout or bailout with no thought as to from where that money might be coming.

fundamentalist July 21, 2008 at 10:44 am

When it comes to econ, I don’t think there is a Judeo-Christian ethic. There always has been a split among churches on what constitutes a Christian ethic with regards to economics. The Catholic scholastics of the 16th century identified with laissez-faire, but the general population of priests and bishops didn’t. In the mostly Protestant Dutch Republic, Calvinists sided with the majority of Catholics who insisted on state/church control of commerce. That’s why Weber’s thesis that capitalism came from Calvinism is ironic. Calvin and Calvinists have never liked free markets. Fortunately for the Dutch, the Erasmian Christians held to the laissez-faire position of the Catholic scholastics as a result of the influence of the Dutch scholastic Lessius. And the Erasmians held most of the positions in government during the formative years.

Laissez-faire was the Protestant position in the US until the late 19th century when mainstream Protestants began to abandon the Bible and adopt Marxist economics. Today, most Protestants endorse some form of socialism while Catholics have become much friendlier toward laissez-faire. Laissez-faire is the only economics consistent with the Bible if you use sound hermeneutics. But sound hermeneutics is as popular as a gold money standard.

Matt Houseward July 21, 2008 at 11:00 am

Low housing prices are a double-edged sword: bad for owners, good for borrowers. However, it’s not quite as bad for owners as we make it out to be. If you bought a $600K home, and now it’s worth $300K: that sucks. How much does it suck? Depends. Can you afford your mortgage payments? Are you planning on moving? If you can afford the mortgage, and you don’t HAVE to move, then your immediate financial situation is unaffected. If you were banking on selling your home for $1.2M, and retiring on the proceeds, and you have no other sources of revenue in your retirement, then you’ve got a problem.

In my case, I bought a townhouse for $150K. I put some work into it, so I might be able to get $140K. OH NO! I’m going to lose $10K on the sale! What a waste! Well, not really. My townhouse may have dropped in price by $10K, but 3 and 4 bedrooms houses have dropped $50K – $100K. So, if the housing market had never crashed, I could have netted $0, then spent an extra $50K to get into a bigger home. Today, I lost $10K, but will save $50K on my next purchase. At the end of the day, the housing crash will make me about $90K better off.

Every situation is different. Those that suffer the most are those that were able to afford $500K+ homes. You can expect a lot of crocodile tears for people that can afford $500K+ homes.

Patrick Hall July 21, 2008 at 11:30 am

“Today, most Protestants endorse some form of socialism while Catholics have become much friendlier toward laissez-faire.”

I suppose this may be the case, if we consider voting for the Republican Party as being “friendly” towards laissez-faire economics. Catholics are much more likely to vote for a Republican today than they were 40 years ago.

The problem is: the Republican Party does not, nor has ever, supported laissez-faire economics; nor do the vast majority of Americans, Catholic or otherwise (I don’t know for a fact, but I would put the figure right around 98%). American Catholics, as they have gone from the lower middle class to the upper middle class (as a result of most American Catholics being from the North, with better public, and more prevalent private, schools), have left the Democrat Party, which has become the party of the inner city, the Black Southerner, and the Midwestern farmer.

I maintain that a large majority of the Catholic population in America (98%?) are politically, economically, and morally no different than their Protestant neighbors.

fundamentalist July 21, 2008 at 12:06 pm

Patrick: “I suppose this may be the case, if we consider voting for the Republican Party as being “friendly” towards laissez-faire economics.”

I don’t consider the Republican party to be friendly toward laissez-faire. They’re socialist-lite.

I was referring to Protestant theologians, pastors and leadership as being socialist. The leadership actually teaches socialism as being “Christian economics.” Like Protestants, I would guess that Catholics were attracted to the Republican party for its conservative social policies. They were willing to tolerate the free market talk of Republicans as long as Republicans didn’t try to implement their talk. With social issues no longer topping the political agenda, two things have happened: 1) Many Republican Protestants and Catholics are going back to their socialist friends in the Democrat party and 2) Republicans are becoming even more socialist in an attempt to hang on to the defectors.

gooddebate July 21, 2008 at 1:07 pm

I think that the only thing good you can say about how republicans have been conducting themselves is that they will collapse the system less fast. I wonder if most people just aren’t thinking about what their positions actually mean. I find myself teaching my children that when they’re hearing an idea that they have to follow the implication of that idea and see where it leads. I’ve talked to so many people who think they want universal healthcare who, when I mention that they will lose the ability to choose who they want to be their provider, hadn’t considered that or just outright don’t believe it.

Maybe what voldamort said is true (in Harry Potter), “there is no right and wrong, there is only power!” Perhaps that’s where we are today, putting your person in power is more important than any issue. It’s more important than justice, it’s more important than freedom.

Brainpolice July 21, 2008 at 2:39 pm

I 100% agree with Matt and have tried to drive that point home before. It usually falls on deaf ears.

Som July 21, 2008 at 3:04 pm

“Maybe what voldamort said is true (in Harry Potter), “there is no right and wrong, there is only power!”"

As long as people accept the idea that there is a final human authority, or a final authority within reality that governs them (outside of the individual himself), an idea reinforced from the very early stages of compulsory schooling and/or “divine right”, then yes. It seems most people will find that this (false) final authority (the state) is using its power to remake right and wrong in whichever way they wish as perfectly acceptable.

It’s just getting worse since the government has been completely out of touch with economic reality, and they will force us bow before Fannie and Freddie, oh and the Fed, and worship their incompetencies.

fundamentalist July 21, 2008 at 3:53 pm

goodebate: “Maybe what voldamort said is true (in Harry Potter), “there is no right and wrong, there is only power!”

Don’t get sucked into the postmodern black hole. Its gravitational attraction is great right now because it’s so popular and hammered into your head on TV and in motion pictures. But remember that the whole postmodernism package include the denial of truth, love, and reason in addition to the denial of right and wrong. Follow reason and you’ll find truth. Don’t let postmodernism convince you that the only reality is the brick wall you can bash your head against.

Walt D. July 21, 2008 at 7:25 pm

Chris – you’re not the only!
Even Robert Reich and Paul Krugman, of all people, are getting this right!
Reich complains of privatized profits and socialized losses, and unconscionable executive compensation – he falls short of identifying the offending parties as former Clinton Administration hacks.
Krugman exposes the circulating canard that Fannie and Freddy’s woes are caused by subprime mortgages, making loans to people with poor credit, adjustable rate loans resetting etc., since Fannie and Freddy, by definition, only made conforming fixed-rate loans. Most California mortgages are Jumbo (non-conforming) loans. So, if we need to figure out why Fannie and Freddy got into trouble we need to look elsewhere.
Try over-leveraged, under-capitalized, illiquid, and badly-managed?

Glen July 21, 2008 at 7:45 pm

Som,

Then why do you see coercion and decline in the belief in a final authority step together in the same direction?

Som July 22, 2008 at 12:45 am

Glen,

“Then why do you see coercion and decline in the belief in a final authority step together in the same direction?”

Because the final authority most people unquestioningly follow these days is not the final authority that TRANSCENDS reality, or the God of Christianity (or any of the other great religions for that matter), but instead most people follow a final HUMAN Authority or final authority WITHIN reality (Scientism, the belief of the absolute explanatory power of the sciences, a group of people who are the “moral guardians” of society, nihilistic denial, etc.) which can and often do often deny the absolute sanctity of the human spirit.

I’m not saying that accepting that a final authority exists is false or will lead to coercion, I’m saying that accepting that a human, or a group of humans given or appointed to a certain status, is the final authority consciously or unconsciously will bring about big trouble.

If you accept that some human or humans are the final authority of your reality, then it’s almost inevitable to believe that some humans, somewhere, are infinitely superior to you. Would that not justify at least some sorts of coercion against you? Why would there be any justification of liberty for you?

To quote Mises:

“This is the difference between slavery and freedom. The slave must do what his superior orders him to do, but the free citizen, and this is what freedom means, is in a position to choose his own way of life.”

On the other hand, would accepting that God, or at the very least no other human or thing WITHIN reality, is the final authority over you, ever justify coercion against you from other human beings? Would you instead be inclined to accept that between humans, there is actually an equality of authority?

I also recommend this http://mises.org/daily/804

TLWP Sam July 22, 2008 at 1:17 am

The ‘there should be no such thing as a final arbitrator’ makes me wonder why can’t a criminal in a anarcho-Libertarian rely on an lengthy appeal way of avoiding punishment? (as Mr Burns was doing in the first futurist episode of The Simpsons) Or, maybe, an appeal to moral relativism – ‘it’s your laws not mine!’? But the criminal should act nice and moral and submit himself to the private police and private jails? Then again he was that moral he wouldn’t have committed the crime in the first place.

John Wayne July 22, 2008 at 10:40 pm

To “TLWP Sam” :

I believe that humans don’t react well to ‘punishment’ and so I think in a truly free world it would be a lack of carrot vs the rod being used as incentive for ‘good behavior.’ Basically if you don’t fulfill your end of the contract, you won’t get paid, or the person whom you cause loss to will be renumerated by an insurance policy you have. Appeal all you want to your insurance company about the loss paid that is on your record – but the definitions of when they pay out are clear in the contract you’d have signed. In then end, the victim is made whole, and the perpetrator thinks how they will avoid a future episode when the premium goes up.

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