Wednesday, September 24, 2008

Peddling A Risk-Free World

Russ Roberts on the financial crisis:
The turmoil in the housing market and the resulting financial crisis is just the latest example of political failure. Politicians wanted more home ownership than the market produces on its own, especially among low-income families. To encourage this politically popular goal, Fannie Mae and Freddie Mac were allowed to privatize their profits and socialize their losses. At the same time, Housing and Urban Development (HUD) required them to expand their commitment to affordable housing. Freddie and Fannie achieved this goal by buying bundles of subprime mortgages.

Both presidential candidates will promise a risk-free world with high returns. But peddling that fantasy is the cause of the current crisis. We treat our children this way--we do our best to insulate them from harm and still allow them to grow. I'd like politicians to treat me as an adult, paying the price for my recklessness and reaping a reward when I am prudent. Returning to that world, the world of markets, is the beginning of a return to stability.
(HT Will McBride)

1 comment:

thinking said...

Both parties have their problems with setting false expectations through high promises, but the Republicans have been far worse.

Republicans believe all their spending is basically free, and they should never ask tax payers to pay for it. That's why record deficits have been run up under the last 3 Republican administrations.

I've never seen a political party in such denial of basic realities, whether it be domestic or foreign policy. And McCain's entire campaign seems to live in some parallel universe that is starting to make Bush look smart and steady.