Profitless Prescience
James Hanley on Oct 8th 2008
From the March 10, 2007 issue of The Economist (p. 7):
Meanwhile Mr Bernanke continued the Fed’s campaign to rein in the mortgage portfolios held by two government sponsored enterprises, Fannie Mae and Freddie Mac. Mr Bernanke suggested that the companies’ sizes and structures posed a risk to financial markets. He called for stronger regulation and supervision of the institutions.
Filed in The Basement
Actually, anyone who stood up strongly against Fannie Mac would have been called a racist. In fact, Barney Frank did it the other day. It just wasn’t worth the noise, another third rail of American politics.
http://news.bostonherald.com/news/opinion/editorials/view.bg?articleid=1124199&srvc=home&position=rated
That article smelled of Murdoch, and guess what?
Hint: FOX et al aren’t really “fair and balanced”. That’s a marketing ploy for the rubes.
- Charles
On a more serious note …
At the Becker-Posner (http://www.becker-posner-blog.com), Judge Posner posits six causes for the current mess. I won’t try to recap them in detail but I think they can be more-or-less reduced to the observation that even though there were many knowledgeable people in positions of authority (eg, Bernanke) who knew there was a potential problem lurking in the housing bubble and associated financial shenanigans, they were inhibited from “blowing the whistle” by personal financial self-interest, corporate interests, conflicting fiduciary obligations, and/or general uncertainty as to how big the bubble was and when it might end.
Given how recently we went through the dot-com bubble and its consequences, and how little seems to have been learned from that experience, one has to wonder if there is anything that can be done to prevent bubbles - or at least restrain them before they get to critical pressure. Maybe in a free, capitalist society comprising fallible and flawed human beings, boom and bust is an unavoidable cycle.
- Charles
Charles,
I am completely bamboozled by your first response. What do Murdoch and Fox have to do with The Economist? I just happened to pick up an old copy in our breakroom today and notice a brief article I probably would have ignored had I seen it when first published. This didn’t come from Murdoch, Fox, or any other right-wing source, and it isn’t something that was published after the FMs’ collapse.
Regarding your second comment. Yes, booms and busts are a natural part of a free market economy. The theory is that free markets create more wealth (in the long run) than regulated markets, not that they create more stability. But let’s not ignore the role the government played in promoting the boom turned bust: had Congress not pushed Fannie and Freddie to offer ever riskier loans to ever less qualified borrowers (in order to get more and more Americans into homeownership, not itself a bad goal), the crisis would not have been anywhere near as bad as it is.
The only real question is, in the absence of that government policy, would we have had a noticeable real estate boom, capable of producing such a traumatic bust, at all? And I don’t know the answer to that.
James -
Sorry, my fault for not being clear. I was just yanking Tom’s chain - the article he referenced was in The Boston Herald, a Murdoch rag - as was apparent from the tone.
Re booms, lots of players contributed to the RE boom, which was Posner’s point (or at least my interpretation of it). Obviously, I also have no idea what contribution each player made, whether any subset was necessary to create a mess of this magnitude, etc. Apparently, neither does anyone else - except maybe Nouriel Roubini, who seems to have a good case for having foreseen the pattern and the extent of the collapse, though not the timing:
http://www.rgemonitor.com/blog/roubini/
He contends that a recession started in 1Q08 … and predicts DOW 7000 next year - take that, James Glassman!
- Charles
Charles,
Ah, I see. Thank you.