Wednesday, July 16, 2008

Short Attention Spans

While I don't really believe the headline of this story, I'm sure it's more true today than it is when the economy is going like gangbusters.

"There may be a backlash against markets at the moment," acknowledged Kevin A. Hassett, economic studies director at the American Enterprise Institute in Washington and an advisor to presumed Republican presidential nominee John McCain. "But the backlash doesn't seem to be informed by any alternative view of how the world works."

True that. Boom and bust is a cycle here, and unless you're willing to settle for the stagnancy of a European socialist economy, I suggest riding this storm out--with apologies to REO Speedwagon.

Update: Here's an alternate view:

Two major related threats loom over the world economy: credit crises and rising inflation. What do these two menaces have in common? Bankers, hedge-fund managers, speculators and capitalism in general have been taking the hit for the economic turmoil, both for credit risk and inflation. But the looming collapse of Fannie Mae and Freddie Macin the United States should help change the focus a little. We are now getting down to the heart of the matter, which turns out not to be rampant capitalism but out of control back-door socialism.

There is nothing free market about the two American mortgage backers, hybrid institutions created by the U.S. government to support mortgages and make home buying easier and more affordable for Americans.


Ellen K said...

And what precipitated these events? Congress mandated that more home loans needed to be made to clients with less than stellar credit histories. I don't know about Cali, but in Texas there were infomercials running 24/7 regarding getting home loans without income documentation, without even the most basic information. When we bought our home many years ago, in the stack of papers was a clear delineation of what our share would be every month. We chose a fixed rate because we favor consistency. Many of the subprime loans featured low low low payments for the first five years and then ballooned in the following five. This is spelled out in the loan agreement. I think greed plays a big role in this. I know people who bought a very expensive home in an area known as Castle Hills with just such a loan. At the time, people across the nation were buying low and flipping property. Well they got complacent and now instead of the original $1500 payment, are looking at a $2750 payment. They gambled that the market would continue to rise and held on too long. While it's sad, it also has a great deal to do with trying to get something for nothing. When the network news featured a hairdresser and a handyman who were whining that they had to default on their $300K home, I had to wonder who would loan them that amount even if they were the best at their jobs in the whole of North Carolina. The loan probably should never have been made. But Congress pushed federal mandates to fund just this type of loan. If you think to the source of such funding, it's no surprise that FannieMae and others are failing-it was a stacked deck.

Darren said...

Clearly the solution is more government involvement.

Ellen K said...

Because they have done such a good job. It makes me So Very Excited with what they will do with healthcare. *rolls eyes*

rightwingprof said...

Here you go:

Darren said...

They're right--I didn't expect to hear that song unplugged!