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5.0 out of 5 stars A saga of criminal stupidity. My copy turned fluorescent yellow from highlighting., August 2, 2009
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This review is from: The Housing Boom and Bust (Hardcover)
To those who have taken even one course in Economics the root of the problem is obvious: the U.S. government decreed that housing would be affordable --without any regard to the underlying realities. The government FORCED banks and other lenders to lend to people whom they otherwise would not have lent to. This resulted in Fannie Mae and Freddie Mac bloating up on loans that were not likely to be paid back, and in turn selling securities based on those worthless loans to a variety of Wall Street firms and foreign investors, all in the name of "affordable housing." By "bloating up," I mean to the tune $2 trillion dollars, a debt greater than the GDP of all but four nations.

All along there has been no shortage of economists, bankers, and other smart people who knew this was wrong, stupid, and dangerous. And their warnings were blithely ignored by politicians aspiring to become heroes of "affordable housing."

As usual, Dr. Sowell has no compunctions about naming names. Congressmen and presidents from both major parties are indicted: Barney Frank, Joe Baca, Maxine Waters, Frank Raines, George Bush (I and II), Bill Clinton, Janet Reno (who threatened to sue lenders who did not lend based on the race of borrowers, rather than their ability to repay loans), and --and this breaks my heart-- even Sen. Kit Bond (R-Missouri), who took $95,000 from Fannie Mae and Freddie Mac PACs.

And as usual, Dr. Sowell answers the question, "What happened?" quite clearly. The facts could not be plainer. Suppose I say, "The goverment should pass a law that everyone should be able to afford a beach house in Malibu." You would say that that can't be and I would ask, "Why not?" Your answer would be this book, but with regards to an only slightly-more-obvious example. America got a big dose of socialism, and now the inevitable result: a big dose of poverty.

There is also a fascinating chapter that revisits the Great Depression, the New Deal, and WW II.
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Showing 1-4 of 4 posts in this discussion
Initial post: Aug 3, 2009 8:09:13 AM PDT
So, I am guessing from your comments that you don't believe home buyers have any culpability in this, nor do the banks that made loans to people who obviously couldn't afford the loans? Talk about drinking the Kool Aid!

In reply to an earlier post on Aug 3, 2009 7:55:03 PM PDT
John says:
Thanks for the cheap revenge-comment, Fred. Hope it makes you feel better.

The banks were less culpable because they were *FORCED* by the government to lend to people whom they otherwise would not lend to. The government, starting with the Community Reinvestment Act in 1977, shoehorned looser and looser lending standards by virtue of the government's regulation in the banking industry. The federal and state governments have more control over banks and other lenders than they have over proprietor's of other industries.

You could not possibly have read the book and missed that, because it is the essential point of the book. It is repeated over and over and over, and many examples are given. Very simple cause with complex ramifications. The REASONS that the housing bust affected markets around the world are also explained, but you have to read the book.

In reply to an earlier post on Aug 4, 2009 8:47:52 AM PDT
I did read the book and agree that government regulation played a part. However, I also believe banks had culpability (outside of the looser standards) and I certainly believe that buyers have culpability.

I will give you an example. We bought our house here in 2004 during a corporate move. We put down roughly 25% as a down payment. The bank insisted, as a condition of our fixed rate mortgage that we take out a home equity loan, which I wanted no part of. The logic was that we had put so much down that we didn't have any money to do repairs to the house. In fact the house was 2 years old and in near perfect condition, and we still had money in the bank. Why did they really want us to take out the loan....so we would use it and they would make a killing on the interest!

In reply to an earlier post on Aug 4, 2009 10:03:56 AM PDT
Last edited by the author on Aug 4, 2009 10:14:14 AM PDT
John says:
Point taken on the HELOC. In the summer of that same year (2004) I was convinced that housing prices had peaked here in southern California because one could put a house up for sale and get multiple offers that day. That was about the peak. By Fall there was already a glut of condominiums for sale in San Diego. At the peak at least one lender was offering to lend 150% of appraised value!! UNBELIEVABLE. Reason? Best I can figure, it was to give the foolhardy buyers enough extra cash to make mortgage payments long enough for that lender to sell the loan to Fannie or Freddie, then they're out.

So I agree with you that lenders are no holier than anyone else, but it was federal and state governments mandating quota-lending and looser (way looser) requirements for borrowers that make this playground of jackassery possible. It sucks that a more responsible buyer such as yourself, who put down a hefty down payment (a TRADITIONAL borrower requirement that a lender working without government interference would require) bought at a price pumped-up by less responsible buyers, including buyers of no means whatsoever, who would actually have *incentives* to walk away from a house later. A few federal government minions put those buyers out there. Those congressmen and senators took money from lenders and FNMA PACs. A dose of corruption got us a dose of poverty.
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