Nuggets of Wisdom

Tuesday, April 12, 2016

Obama Be Repeatin' History

What caused the housing bubble and economic recession? Statists claim it was massive deregulation under the Bush Administration, especially with the repeal of Glass-Stegall (which actually occurred under Clinton). However, not only do most economists agree that the Glass-Stegall repeal was not responsible, but overall regulation had been increasing rather than decreasing over the past few decades preceding the recession.

So what did cause the housing bubble? There are two main culprits. The first was the Community Reinvestment Act of 1977, which required banks to lend loans to individuals from low-income areas. The second was the Federal Reserve, which, under Alan Greenspan, and later Ben Bernanke, in an attempt to correct a previous recession, artificially lowered federal interest rates to as low as 1% as to allow more people to buy homes.

In other words, banks were forced to provide loans to poor people to buy houses they couldn’t afford and at rates that were lower than normal market value. Most economically-minded individuals such as Ron Paul and Peter Schiff claimed that these policies would only do more harm than good, while mainstream "economists" such as Paul Krugman insisted that these policies were necessary, even insisting that we needed "to create a housing bubble to replace the Nasdaq bubble."

Predictably enough (to everyone but Greenspan, Bernanke, or Krugman), the same people who couldn’t afford their new houses in the first place had problems paying off their home loans. (Seriously, who could have saw this coming--other than the people who saw it coming?!)

To prevent this housing bubble from inflating any further, Fannie Mae and Freddie Mac took it upon themselves to absorb most of the bad loans. Most of the people in charge remained in denial of the problem. Greenspan insisted that there was no housing bubble (which there was!), while Barney Frank, Chair of the House Financial Services Committee, insisted that everything was under control (which it wasn't!).

Inevitably, in 2008, the housing bubble burst, taking out the economy with it. The American people lost their homes, their jobs, and even their life savings. Nearly eight years later, the economy has barely recovered, the politicians responsible for this mess have yet to face any consequences for their reckless decisions and actions, and our dear leader, Barack Obama, in his infinite wisdom, is set to force banks to make home loans to people with weaker credit.

Sigh! Once again, rather than learn from our mistakes, we are only set to repeat them.