Thursday, February 12, 2009

Basic Economics Since 1946

From Chapter VI "Credit Diverts Production" in Henry Hazlitt's "Economics in One Lesson," first published in 1946:
Government-guaranteed home mortgages, especially when a negligible down payment or no down payment whatever is required, inevitably mean more bad loans than otherwise. They force the general taxpayer to subsidize the bad risks and to defray the losses. They encourage people to “buy” houses that they cannot really afford. They tend eventually to bring about an oversupply of houses as compared with other things. They temporarily overstimulate building, raise the cost of building for everybody (including the buyers of the homes with the guaranteed mortgages), and may mislead the building industry into an eventually costly overexpansion. In brief, in they long run they do not increase overall national production but encourage malinvestment.
Presume he was referring to the VA Loan Program which began in 1944. I'd sure like to see an analysis of the lifetime of the program. For an in depth analysis of Free Market/Mixed Market: Ayn Rand Center for Individual Rights.

(via Carpe Diem)


Carl said...

As I've said, "I've always hated the implicit government backing of Freddie and Fannie."

Anonymous said...

The disconnect between lender and borrower is the problem. The problems have been evident for years for anyone who looked at what was going on in packaging and shipping off mortgages.

Bryan said...

Its not necessarily just VA loans he's referring to, there are also FHA loans to consider. FHA loans are also a large part of the home economy.