Want to screw up a market? Want to put taxpayers on the hook for a lot more risk, then pull the plug on that, thus forcing a rush of people to take advantage of your interference in the market? Then Obamunism is for you – bet you didn’t know that Uncle Sam was actually backing much larger home loans than he did before the crash – I sure as heck didn’t. From Reuters:
…Beginning on October 1, the government will dial back on the size of mortgages it guarantees in high-cost areas like San Francisco, New York and Washington.
After that, the maximum loan amount that Fannie Mae and Freddie Mac will back is scheduled to drop from $729,750 to $625,500. And that may make mortgages more expensive or harder to get…
I had been entirely unsurprised that the DC-metro area was still experiencing a property boom. After all, with Obama massively increasing the size of government – and thus the number of government employees – it stood to reason that the DC housing market would continue to surge. I have been a little bit perplexed at the home prices in New York City, however. I know – stock prices have surged and that is a big deal in the New York area housing market…but, still, the economy is down, the New York economy is far from recovered and its not like there is a population boom in that area. Now I know better – Uncle Sam has been underwriting “jumbo” loans, allowing loans which used to require 30% down to be obtained by people with 10% down…meaning, of course, that we’ve been assisting people in getting homes they probably can’t afford, thus fueling a housing bubble which will now pop come October when the “free” money dries up.
Splendid bit of government work there, huh? Nothing like government stepping in to “help”, now is there?
This is why you can’t have the government run the economy – there is no way the government will ever get it right. Pressed this way and that by various interests, government policy when applied to economic activities will, at best, favor a few well-connected people and groups and, at worst, will so badly wreck the normal flow of economic activity that a crash will occur. While liberals like to place all the blame for the 2008 crash on Wall Street, the fact will always remain that Wall Street merely worked in the economic house set up by DC – we didn’t just allow a speculative bubble in real estate to emerge, we downright encouraged it. The government tried to re-inflate that bubble in 2009 with stimulus programs but the dead animal could not even be temporarily revived…except in a few, high-end markets. But now even that is coming to an end.
Let it all crash – it is the only way we can find out what our economy is really worth and which companies are actually in good shape. Yes, it will be painful…but not as painful as it’ll get if we keep trying to prop up the economy with fake money, borrowing and screwball incentives.
HAT TIP: Mish’s
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