[ExI] "This American Life" on global credit crisis
max at maxmore.com
Tue Oct 14 04:43:16 UTC 2008
Damien: If that's what Lee said (I'm behind on those posts), then
he's right--as *part* of the cause. Certainly more regulations are
the answer only to the most bone-headed statist observer.
It's very disturbing to see otherwise smart people continue to blame
the greedy capitalists for acting within the context of incentives
distorted by idiotic government policies.
Another viewpoint from someone whose work I've read before and thought well of:
Anatomy of a Train Wreck: Causes of the Mortgage Meltdown
Stan J. Liebowitz
The Independent Institute, October 3, 2008
Why did the mortgage market melt down so badly? Why were there so
many defaults when the economy was not particularly weak? Why were
the securities based upon these mortgages not considered anywhere as
risky as they actually turned out to be?
This report concludes that, in an attempt to increase home ownership,
particularly by minorities and the less affluent, virtually every
branch of the government undertook an attack on underwriting
standards starting in the early 1990s. Regulators, academic
specialists, GSEs, and housing activists universally praised the
decline in mortgage-underwriting standards as an "innovation" in
mortgage lending. This weakening of underwriting standards succeeded
in increasing home ownership and also the price of housing, helping
to lead to a housing price bubble. The price bubble, along with
relaxed lending standards, allowed speculators to purchase homes
without putting their own money at risk.
The recent rise in foreclosures is not related empirically to the
distinction between subprime and prime loans since both sustained the
same percentage increase of foreclosures and at the same time. Nor is
it consistent with the "nasty subprime lender" hypothesis currently
considered to be the cause of the mortgage meltdown. Instead, the
important factor is the distinction between adjustable-rate and
fixed-rate mortgages. This evidence is consistent with speculators
turning and running when housing prices stopped rising.
>At 02:29 PM 10/13/2008 -0700, PJ wrote:
> >The second podcast, "Another Frightening Show About the Economy",
> >is the most eyeopening, on credit default swaps -- something, btw, most
> >analyses I've seen never even touch on. This is scarier than the worst
> >slasher movie ever. Talk about losing sleep over the endless greed and
> >stupidity of people...
>Oh, PJ, don't you understand anything? Lee has patiently explained
>that it's all due to the government bowing and scraping to the poor,
>forcing their will upon those luckless "very careful
>(and very self-interested)" finance people you so unkindly dub greedy
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