Wednesday, February 6, 2008

Cause of the Housing "Crisis"

Amidst all the calls for government bailouts, economic stimulus packages, and investigations into the evil, corrupt corporations which forced people to buy homes they couldn't afford, let's not forget the root cause of the housing bubble, burst, and eventual fallout: greed.

Greed drove the housing bubble, primarily the greed of individuals with limited means and education, who saw an opportunity to get rich by trading up as the housing market shot up like a drug addict after a score. Greed was also evident on the part of the hedge funds, looking for better returns at higher risk; financial companies, making millions packaging bad mortgages as securities; banks, lending to people and reselling to wall street for a quick buck; and everyone involved, taking the money while they could and expecting the government to bail them out if/when it went south.

Greed also caused the burst, in a more subtle way. Greedy for fame as the architects of the "new economy", the regulators entrusted to prevent financial turmoil instead blew the bubble. Greedy to spend without increasing inflation, Clinton turned off the CPI, disconnecting it from reality. This allowed Greenspan to keep interest rates at rock bottom while claiming to have inflation under control (which was obviously false), keeping the firehose of cheap debt blowing up the housing bubble.

Finally, greed will also be the primary factor in the fallout. Greed for votes is causing politicians to ignore long-term economic effects, and throw more easy money at the problem. Greed for votes gives "tax rebates" to people who don't pay any taxes. Greed for votes takes more money from the financially responsible people in the country, and gives it to the people who's greed helped create the housing bubble. Greed for a quick, painless fix and a way to avoid paying for earlier mistakes will continue to print easy money, pushing real inflation out of control, sewing the seeds for an food crisis for the lower class. Greed for political gain will push off long term problems, and create even bigger crises for our children.

Money isn't the root of all evil; it's a medium for valuing the exchange of goods and services. We expect greed from people and individuals in our economy; capitalism is built in everyone's greed counter-balancing everyone else's. On the other hand, greed, in the hearts and minds of the people entrusted to help the country and its people, is a very dangerous thing indeed.

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