Howard County Maryland Blog

Local Politics and Current Events

Housing and Prices

Posted by David Keelan on Saturday, October 11, 2008

Thomas Sowell, and economist and social commentatory, wrote an article explaining the artificially high price of housing in San Fransisco putting the blame squarely on the shoulders of well meaning enviromentalists and anti-sprawl advocates.

Sowell went on to explain that the unintended consequences were that lower income, working class, and some middle income people were priced out of the housing market.  He was speaking about police, firemen, teachers, etc.  When I visited San Fransisco eight years ago people were talking about it and were rather disgusted with the situation.  Perhaps with the burst housing bubble things got better?

Well, Barney Frank still refuses to recognize the unintended consequences of government social engineering and in particular its role in the current financial situation.  Zod thinks it is ok too.  After all it was all done with good intentions never mind the consequences.  If you don’t support it you don’t care.

What they don’t mention is that they created a market that because of easy credit housing prices sky rocketed.  They didn’t think the bubble would burst?  They didn’t think that low income households were buying houses at the high end of the market prices (bubble) and that they would end upside down on their loans?  They didn’t think that they were creating false hope?

Don’t worry about it.  Fred and Fran will pick up the tab.  After all they are backed by the US Government.

All we have to do is look around to see what those good intentions gave us and the harm that they ultimately did to the people they tried to help (I include Freddie and Frannie because they have ties to Frank as well).

It is not good public policy to force banks to make loans to people that can’t pay them back.  It is not good

“public policy to mandate lending for reasons other than the capacity of households to make their payments. ”

“The implicit operative philosophy: Our financial system is inherently unfair, and the disenfranchised should, by mandate, be dealt in on whatever terms. ”

One can say that banks should not have made the loan. But the fact is the law gave them the incentive to do so — all the more so because such loans in low-income ZIP codes were easily sold to Fannie Mae under pressure from Congress and HUD to meet its “affordable housing goals and subgoals.”

So, instead of helping those who needed help they gave them false hope, ravaged neighborhoods that were on the brink of recovery and now full of foreclosed homes.  And you, if you agree with me, are a racist and just don’t care?

Hmmm.  I wonder what Barney is doing to help these families and neighborhoods?  WIll his brand of social engineering help them now?

Read the whole article here:


6 Responses to “Housing and Prices”

  1. cindy vaillancourt said

    There is something missing in the
    “people bought houses they couldn’t afford and defaulted on their loans and the world went to hell in a handbasket” lament posted here and reiterated ad nauseum in the media. So the feds encouraged lenders to ease standards to encourage homeownership. Home ownership is a good thing. What’s missing is why this well intentioned plan went haywire. It wasn’t the greed or the stupidity of the homebuyers. All they had to gain from making lousy decisions was a place to live briefly and soul crushing debt that was destined to end badly. The truth is there was a considerable profit motive for just about everyone in the process EXCEPT the homeBUYER. Developers moved inventory, often at inflated prices…. the loan reps made big commissions …. the lenders made big fees … appraisers kept busy …. title companies were swamped … realtors made commissions. All of these cogs walked away from these deals with their profits in hand…. the buyer was left to service the debt and the only party at real risk was the insurance company (turns out it was us). Making home mortgages available to a wider cross section of people was not the death knell of the economy …. abuses dreamed up by and for the profit of creative paper pushers was the giant step — allowing it to continue for so long was the coup de grace.
    cindy v

  2. Cindy, you are absolutely correct.

    We have to recognize that some of these homebuyers were speculators trying to capitalize on the housing market bubble.

    To your point the vast majority of these buyers are probably our neighbors, friends, and co-workers who had to “suddenly” move to a new home. It is sad. I think these people were treated as less than a cog.

    I don’t agree that “making home mortgages available to a wider cross section of people was not the death knell of the economy.” First I would not call it a death knell (did I call it that?).

    To me this is about the relationship between Govt and the Free Market. When the Govt steps in the create an environment such as this one – the unintended consequences. They never look too far down the road. People are greedy and are going to seek advantage. Combine that with easy credit and this is what we get.

    I worry about the current bail out. It is socialism and I bet even the most conservative president and congress will never be able to untangle Government from the financial sector. They have no plan in the bail out to do so. They are not contemplating it because they are short sighted or because they have and they like what they see.

  3. General Zod said

    I’ll give you the socialism part but the thing that has me worried is the oversight. This current congress and administration are going down the same road as President Hoover and look where that got us. A small group of people should not have all the power. The markets should have more of a say.

    They are short sighted because it’s an election year. We the people are ultimately going to lose out in this. I do not like the fact that they rushed into this plan and was willing to fork over a trillion dollars to the treasury secretary. Clearly the plan did not stop the markets from dropping. It’s is if they rushed to slap a bandaide on a gushing wound.

  4. cindy vaillancourt said

    the death knell rant is my version of the racket from the media, not David.

    I also agree that the rushed bail out will likely end badly too — badly for us and the country but really well for a few well placed friends of the powerful.

    As for the government insertion of “easy credit” into the housing market. You are right that it was forsee-able that greed and abuse would follow as a matter of course.

    I would still argue that the basic idea of directing the quasi governmental agencies (fnma and fdmc) to actively encourage and assist folks who had not previously had reasonable access to mortgage opportunities into homeownership and full participation in the american economy.

    I would also argue that the reason this concept was abused (and the abuse was allowed) was because the beneficiaries were NOT the underserved — they were the powerful.

    I also agree that the underlying philosophical problem is that you can either have free markets or you can have government intervention — the haphazard hybrid that we are currently dealing with has given us the worst of both worlds.

    cindy v

  5. cindy vaillancourt said

    sorry – reformatting leaves me with missing phrases.

    should have read ..encouraging assistance was a good thing.


  6. timactual said

    There is an old saying, “You can’t cheat an honest man”. Some of those homebuyers were just as greedy and dishonest as the brokers, etc., just on a smaller scale. Some were speculators. Has anyone else watched those hour long television shows showing us how easy it is to buy real estate for no money down and get rich quick? I have had neighbors who were quite open about the fact that they only intended to live there long enough to pretty up the house a little and sell it for a quick profit, then move on to another and do it again. Some allowed themselves to be convinced that those boring old cliches like “You get what you pay for” didn’t apply to them.

    Not to worry, however. We have been assured by the financial and political sages that the problem will be solved with a $700 billion Presidential slush fund.
    Which leads me to point out that there will be good news and bad news in November; the good news is that Bush will be on his way back to Texas, the bad news is that either Obama or McCain will be President.

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