More of the Same Trouble in Financial Markets Called by Government for the Future
Worker is back after a three-month vacation from blogging for two reasons, one is that a frnd said that he enjoys the blog and two is that am taking break from intensive math study filling up notebooks of equations so my hand is healed enough to where can punch the keys. I'll be doing the blog when mood hits which will be probably few times a month. For what its worth.
Ok so point is over the last three months the financial markets have had a meltdown with contagion throughout. The reason for the meltdown is that the GSEs (government sponsored enterprises) guarantee the mortgage loans of lenders. This means that the lenders have no reason to control the risk because the more they lend the more that is guaranteed. This pumps bad money into the system and raises home prices which hurts the poor most of all. (Same thing with government guarantees of student loans which hurts the brightest and youngest most of all, but that is another story, one with perhaps larger repercussions on the longterm).
So of course the government must do something about this....what? More of the same ! The Bush II administration (don't get me wrong the only presidential candidate, and in fact the only politician in 20 years who wants to do anything about it let alone who understands the problem is Ron Paul) has now removed all limits on Fannie Mae and Feddie Mac debt levels so now the market distortion is limitless, which means nothing has been done about the problem and in fact it has been made worse.
Now there is pending legislation to increase the amount per loan that the GSEs can guarantee to $735,000 from $400,000. These high levels of mortgages of course are aimed at the poor (that was cynical, I am sorry. Needless to say the poor do not need or want seven hundred thousand dollar homes. I know I don't).
It's almost as if the powers have given up all pretense of even trying to distribute wealth downward which obstensibly the purpose of government (whereas of course we know the whole purpose of government is to enrich the special interests at the expense of everyone else).
Ok then the last nail in the coffin of common sense and good policy is the proposed 'moritorium' on foreclosures. This is tantamount to nationalization of private assets, not to mention a violation of the private right to contract. This sure as anything else will dry-up financial markets. The right-to-contract and freedom from government takeover of private property (e.g. rule of law) has been what has made the USA a popular place to invest and what has sustained our government and private debt. Needless to say there is nowhere for the dollar to go but down. Thus those that have less dollars to spend can buy less, this is the everpresent "law of unintended consequences" of government policies.
As the late great Kurt Vonnegut said, "and so it goes".