The Freedom Factory

With all the speculation on a government takeover of the banking industry, including Alan Greenspan’s statement that “the U.S. may have to temporarily nationalize some banks until the industry is restructured,” we should do some serious soul searching. America has a long tradition of respecting property rights and restricting government power from the private domain. Overt nationalization would be unconstitutional, but change is in the air… Continue Reading

Ever heard of the crash in subprime mortgages? In 2008, this was the primary cause behind the financial and credit crises. The reason: too many loans to people who could not afford them. One government department, in particular, was very much responsible for getting property into the hands of large numbers of people who should not have been buying: U.S. Department of Housing and Urban Development (HUD). HUD’s new solution to “fixing” the housing crisis: make it easier for subprime buyers to keep on buying!

There were various reasons for the high number of loans to unqualified buyers:

• Low interest rates set by the Federal Reserve
• Explosive growth in the money supply following 9/11
• Congressional mandates to Fannie Mae and Freddie Mac to expand the percentage of subprime debt held in their portfolios
• Expansion of HUD programs to make it easy for low-income buyers to obtain loans

Wall Street geniuses came up with some clever methods for splices up these loans and trading them on secondary markets, adding liquidity and making the engineered instruments look better than the subprime debt of which they were comprised. The premise for securitization is great, but the underlying risks posed by this inflated financial system were not recognized by far too many parties to these transactions.

What happened was an implosion of debt instruments related to subprime mortgages. Now, after trillions of dollars of losses, our currency and entire financial system in jeopardy, the children of Congress are tossing more money at HUD to extend more loans that will end up bad. Are these people insane or trying to bankrupt us all?