Ron Paul on the mortgage crisis
23 Sep 2008
From: Ervan Darnell
I dislike simply quoting other sources without adding anything, but this
is so spot on, I will anyway:
> I am afraid that policymakers today have not learned the lesson that
> prices must adjust to economic reality. The bailout of Fannie and
> Freddie, the purchase of AIG, and the latest multi-hundred billion
> dollar Treasury scheme all have one thing in common: They seek to
> prevent the liquidation of bad debt and worthless assets at market
> prices, and instead try to prop up those markets and keep those assets
> trading at prices far in excess of what any buyer would be willing to
> Additionally, the government's actions encourage moral hazard of the
> worst sort. Now that the precedent has been set, the likelihood of
> financial institutions to engage in riskier investment schemes is
> increased, because they now know that an investment position so
> overextended as to threaten the stability of the financial system will
> result in a government bailout and purchase of worthless, illiquid assets.
> Using trillions of dollars of taxpayer money to purchase illusory
> short-term security, the government is actually ensuring even greater
> instability in the financial system in the long term.
The rest of the article is worth reading too.
I guess my spin is that, absent government intervention, there is good
news in the mortgage crisis too:
1) Housing was overpriced. Its coming down in price means that more
people can now afford it. I find it ironic that Obama, who claims to be
for the little guy, is sponsoring programs to keep the price inflated.
2) People who recklessly speculated on housing as an investment divorced
from its economic reality just got burned. They deserve that, not in a
moral sense, but in the sense that hopefully people will be a bit
smarter next time about the nature of house prices. Similarly,
investment companies that were reckless now have a tarnished reputation
(or bankruptcy). That's deserved as well.
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