Jerry Pournelle
I told you it would happen. I’ve been telling you for years: you can’t pump money into the housing market, and keep lowering the interest rates, without creating a bubble; and eventually the bubble will burst. Water runs downhill. Eventually it reaches bottom no matter what you wish.
Fannie Mae and Freddie Mac were invented to create a housing bubble. I can’t think that those who created those government owned private companies — they used to be really profitable for their stockholders — didn’t know that pumping more money into the housing market would drive housing prices to ridiculously high levels. Surely at least some Congress critters have studied elementary economics? If you make low cost guaranteed loans restricted to investing in Quaker Oats what do you think will happen? I wonder how many Congress critters profited from the bubbles? Either directly or in big campaign contributions from those who did?
The intent of Fannie Mae and Freddie Mac was to make it easier for more Americans to own a house. A noble ambition, and one that the FHA was doing pretty well with; but FHA didn’t insure loans that looked too risky. Not good enough. There were people out there who wanted a house. They had awful jobs, and often they were minority people, and they wanted to own a house. They were tired of renting. Like the chap who is losing his house in Anaheim: he paid $480,000 for a house, but his income is about $700 a month, and now he’s facing foreclosure. Big surprise. Add enough instances of this and Fannie Mae and Freddie Mac own a trillion dollars worth of unsalable housing. Unsalable at anything like the amount loaned on it, anyway. So: something must be done....[more]
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