Democrats Caused Housing Mess

[bigjon]

ManusJustus said:

mesoteto said:

if the majority of people who took out the loans and such (which are the real problem) had know what they were getting into and been warned about the dangers then most of this woe could have been avoided

Theoretically, the free market would have corrected that.  However, the theory behind the free market fixing itself has been proven wrong.  What we need is government intervention.

If your doctor told you had a disease and you should take a pill, would you?  Most people dont have the ability to make a decision for themselves, so they have to trust the doctor.  To prevent the doctor from taking advantage of the patient, government regulation is required.

Same goes for loans.  People who dont understand financing have to trust their lender/financial advisor, who can easily convince them to take a certain plan.  Just like it doesnt take much for a doctor to convince you to take a presicription.  Likewise, government regulation is needed to prevent lenders/financial advisors from taking advantage of people.

And noone has to rewrite economic thought in the process, its already understood that assymentry in information is reason for government intervention.

 

 One problem. The free market did not cause the housing crisis. Government intervention in the free market caused the housing crisis.

To put it simply- The government pressure agencies through F & F to give loans to people who did not deserve them or could not afford them (because it makes people feel sooo good inside to give a home to a poor person). That is what started, then the free market did work, but of a bad premise that was founded by gov intervention. You see it is all supply and demand, more people were getting houses that should not have been. More demand. Housing prices rise. This is where free market took over. Speculators (many time normal people) were buying a house (or even a second) under the idea that it would make them tons of equity, which they would sell before their adjustible rate mortgage went up. Well a little while back the bubble popped and people who bought a house for profit reason were not having to pay a rate they could not afford on a house that was losing value. Then, an entire glut of houses when on the market for sales. Supply and demand... more supply house continued to lose value, and no one could buy them because of the credit cruch caused by people getting foreclosed on because they could not afford the APR. No we have reached the point where banks have so many bad mortgages that they are no longer liquid... thus the bailout plan. To give some liquidity to get people buying houses again and cause the prices to rise again. Once the prices rise again that bad paper can be sold and all wont be lost... whew...

But you see, what started the probem was the gov pushing the private sector around. If they do not... there is no rising housing cost, no speculation, no bubble no credit cruch.

This theory about rampant free market distruction has no viable basis and is set for by advocates of socialism.