View 496 December 10 - 16, 2007 (original) (raw)
Monday, December 10, 2007
Elementary Economics and Good Intentions
The Wall Street Journal says that we're not out of the woods on the credit crisis, but it's manageable. They compare this to the tech stock disaster, and the S&L collapse.
http://online.wsj.com/article/
SB119724657737318810.html?
mod=hps_us_whats_news
The problems started when theorists and moralists decided it was a Good Thing for people to own homes. I don't disagree with that proposition. Aristotle defines democracy as rule by the middle class; the middle class are those who possess the goods of fortune in moderation; home ownership is a pretty good cushion against the ups and downs of life, and while it's not Jeffersonian democracy of small nearly self-sufficient land owners, it's a good thing.
So the government set out to make it easier to own a house. They created mortgage guarantee agencies that eventually spun off to be more or less private companies. These outfits originally did no great harm, but when they went commercial they had a big incentive to get those loans out. They were able to bundle loan paper into packages and resell those. This created more money to lend. A sort of feeding frenzy went up, and as the free market always does, the result was a race to the bottom: who could make the worst loans and still survive?
Anyone could predict the coming bubble, and some of us did, but it did no good. The free market will sell anything including your grand daughter's virtue, and compete until the price is as low as it can be. The free market will use any kind of tricks to get customers. The ethics of the Oriental bazaar prevail as evolution takes its course and the ethical are driven out by the rest. Gresham's Law holds in commerce too.
The bubble created money looking for borrowers. The market found borrowers. Lots of them including the chap headlined in the LA Times a few weeks ago: an illegal immigrant who bought a 500,000houseonessentiallynothingdownandlowinterestonlypayments,onanincomeasa"landscapedesigner"otherwiseknownasagardener:under500,000 house on essentially nothing down and low interest only payments, on an income as a "landscape designer" otherwise known as a gardener: under 500,000houseonessentiallynothingdownandlowinterestonlypayments,onanincomeasa"landscapedesigner"otherwiseknownasagardener:under10/hour. He now sits in his tears awaiting foreclosure. He will lose his house.
Which is pathetic, but it was inevitable.
We have done the same with education. We wanted more people to go to college, so we set up systems to inject lots of money into the college system. The result was that college and university bureaucracies found ways to spend all that money and demand more, and now the middle class graduates as debtors, headed for bankruptcy even as they begin their families.
And they never catch wise!
When I was a youth my European friends used to say that you could get a very good High School education in the United States. Of course you had to go to four years of college to get it.
Now your four years of junior college won't generally equal what we used to get in the better high schools, the universities have watered everything down so they can bring in more and more students with their endless supplies of borrowed money, and we sow the wind once more.
When you throw money at a problem the one thing you can be sure of is that they money will be absorbed and spent. You may or may not get the problem solved.
In my aerospace days, the government threw money at the ICBM market, and by God we build ICBM's; but those were the days when if your company couldn't do a job there was another eager to get that money, the jobs well well defined, and people like Schriever demanded results.
Now we just throw the money and watch bureacracies catch it. Alas, Babylon.
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The latest mailbag is up at Chaos Manor Reviews, and the column will be up presently.
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I am listening to a couple of radio commentators who seem to swallow whole the notion that the government, particularly the feds, never prosecute people unless there is good reason. Child porn possessors are always terrible people. Of course John and Ken are champions of the border patrol agents whom they say were prosecuted on vendetta. Ah well.
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I see Fred was upset by anitem that got to me as well.
http://www.fredoneverything.net/Kreager.shtml
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