Well, here’s the problem with this. Banks started making bad loans BECAUSE of Government. Banks do not, en masse, make loans to people who aren't likely to pay the money back without Government encouragement.
The Clinton Administration passed a law which provided funding to banks that gave loans to "risky" buyers with bad credit. Since then there’s been an endless stream of laws doing the exact same thing. Politicians like saying "housing is at a record high" so they’ve been trying to game the financial markets to encourage loans to anyone and everyone.
That’s what primarily caused this crisis.
Don’t get me wrong, there were other causes as well. The 1996 bill did not, in and of itself, cause this problem. But in general this was caused by a society that thinks it can do anything it wants because Government will "manage" the economy and always bail it out.
If you agree with this article ask yourself this: Once the economy recovers a little, why wouldn’t banks go back to the exact same lending practices that got us into this mess in the first place? If they know the Government will bail them out there’s no reason not to?
Oh, and while you are asking yourself that, also ask yourself why Europe got in the same trouble even though they have an example of the highly managed economy that people like the article’s author are endorsing.
> Banks do not, en masse, make loans to people who aren't likely to pay the money back without Government encouragement.
But when they securitize the loan, and sell it on, they have every incentive to 'make bad loans', because they get a cut of the sale, and little of the actual risk.
This crisis does not have one and only one cause - it's a mix of nasties that came together. Anyone who is trying to sell you one policy that would have fixed it "it's all the government's fault!", or "if only we had had more regulation!" (without saying what regulation) is very likely wrong.
Tyler Cowen, as he often does, has something sensible to say:
The Clinton Administration passed a law which provided funding to banks that gave loans to "risky" buyers with bad credit. Since then there’s been an endless stream of laws doing the exact same thing. Politicians like saying "housing is at a record high" so they’ve been trying to game the financial markets to encourage loans to anyone and everyone.
That’s what primarily caused this crisis.
Don’t get me wrong, there were other causes as well. The 1996 bill did not, in and of itself, cause this problem. But in general this was caused by a society that thinks it can do anything it wants because Government will "manage" the economy and always bail it out.
If you agree with this article ask yourself this: Once the economy recovers a little, why wouldn’t banks go back to the exact same lending practices that got us into this mess in the first place? If they know the Government will bail them out there’s no reason not to?
Oh, and while you are asking yourself that, also ask yourself why Europe got in the same trouble even though they have an example of the highly managed economy that people like the article’s author are endorsing.