Links to Four Excellent Articles (UK's Guardian and WSJ)
Market Failure or Government Failure? - Wall Street Journal, March 19
"Left out of this narrative is the government's disastrous mortgage and housing policy. Without the policies followed by Fannie Mae and Freddie Mac—and the destructive changes in housing and mortgage policies, like authorizing subprime and Alt-A mortgages for impecunious borrowers—the crisis would not have happened."
..."For the first 150 years of this republic, the federal government ran a budget surplus in most peacetime years. Wartime deficits were followed by surpluses that reduced outstanding debt. President Truman paid for most of the Korean War, President Eisenhower ran a budget surplus except during the deep 1957-58 recession. Except for the Clinton years, deficits have been the rule since the 1960s. When Vice President Dick Cheney told Paul O'Neill that deficits didn't matter, he neglected to add "if the Chinese or Japanese buy the debt.""
Obama Mortgage Plan Brings No Relief - Guardian, March 29
"Alan Greenspan, Ben Bernanke, and the rest of the crew running economic policy somehow could not see the housing bubble as it grew to more than $8tn. It really should have been hard to miss. Nationwide house prices had just tracked overall inflation for 100 years from 1895 to 1995. Suddenly in 1995, coinciding with the stock bubble, house prices began to hugely outpace the overall rate of inflation.
There was no explanation for this run-up in house prices on either the supply or demand side of the housing market. Furthermore, there was no unusual increase in rents, providing further confirmation that fundamentals were not behind the increase in house prices."
..."Remarkably, the folks in charge seem to have learned zip. They still have no clue about the housing bubble. How else can anyone explain the Obama administration's latest proposal for helping out underwater homeowners?"
Why Canada Avoided a Mortgage Meltdown - Wall Street Journal, March 19
"Canada makes a useful comparison for the U.S. Both countries are rich, advanced, stable, have sophisticated financial systems and pioneer histories, and stretch from Atlantic to Pacific. But Canada has no housing GSEs. Mortgage interest is not tax deductible. It does not have 30-year fixed rate, freely prepayable mortgage loans. Mortgage lending is more conservative and much more creditor-friendly.
Canadian mortgage lenders have full recourse to the mortgage borrower's other assets and income, in addition to having the house as collateral. This means there is little incentive for borrowers to "walk away" from their mortgage."
..."Here's the home ownership rate in Canada: 68%. In the U.S. it's 67%. The U.S. rate peaked at the top of the housing bubble at 69%. In other words, two very different housing finance systems, one much riskier than the other, produced virtually the same home ownership rate.
This must cause us to call into question longstanding U.S. beliefs about the relationship of government-subsidized housing finance to home ownership"
The War on Drugs Is Doomed - Wall Street Journal, March 22
"I suggest that one or two of Mexico's very fine economists trained at the University of Chicago by Milton Friedman sit down with President Obama's team to explain a few things about how markets work. They could begin by outlining the path that a worthless weed travels to become the funding for the cartel's firepower. In this Econ 101 lesson, students will learn how the lion's share of the profit is in getting the stuff over the U.S. border to the American consumer. In football terms, Juárez is first and goal.
Mexico hasn't always been an important playing field for drug cartels. For many years cocaine traffickers used the Caribbean to get their product to their customers in the largest and richest market in the hemisphere. But when the U.S. redoubled its efforts to block shipments traveling by sea, the entrepreneurs shifted to land routes through Central America and Mexico."
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