HomeArticlesEconomicsAnatomy of a Government-Caused Bubble


Anatomy of a Government-Caused Bubble — 4 Comments

  1. I think that nearly anything that government does, since it is by force of law with threat of fines and imprisonment, means that it will cause distortion of the marketplaces.

    You are correct in what you have written here, but it is actually worse: the government not only guaranteed the loans, they mandated that if the government controlled and regulated entities wanted to be in business to make good loans, they had to, by law, show that they were also making risky loans. To do that, the lenders had to ease the requirements for loans, producing by the 2000’s a situation where people could have no money down, and have no documentation of income or wealth necessary to pay it and still get a loan… and people would do it, because the housing bubble made it look like the increase in housing prices would never end, so if you borrowed $400K today, next year you would make at least $32K in home value. Who would want to pass up the opportunity to make $30,000 from nothing?

    Non-government regulated entities like Countrywide just jumped into the business climate set up by the government, and their real crime was that they competed well in it.

    • You would think they could learn from their mistakes. In May Minnesota approved a similar program for loans to small businesses. A guarantee of 70 percent of the value of the loan to lenders. Now we will face another bubble.

    • Yes, there is more accuracy in this than in many mainline media reports because they were able to portray motives of various characters in the drama. However, all these participants were players AFTER the legislation occurred. It would have been better to portray the congressional debates that caused the loan guarantees.

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