Thursday, April 05, 2007

When in Doubt, Ask the Government to Get Us Out

Latest news says that over 13% of all subprime borrowers are falling back on their payments, according to Bloomberg's Yalman Onaran.

So, let's just get the government to freeze all foreclosures on subprime borrowers. Now there's an idea whose time has come, in this era of bigger government.

[Thanks to and Van Helsing for the image.]

May I suggest that this, once again, is killing the messenger?

Banks and lenders were only the middlemen in the distribution of credit that led to this situation. Their coffers were full of credit galore, and under my economic logic, greater supply means lower prices -- not good if you're a mortgage lender.

So the solution? Find a way to increase demand; and that is exactly what the mortgage companies and banks did, by scraping the bottom of the borrower barrel so as to increase demand for mortgage dollars and keep things flowing at a decent rate. It looks to me more like a survival tactic than a "reckless" or mean-spirited trick.

Meanwhile, no one stops to ask where the lenders are getting the funding.

Among the possibilities is the one I favor: The money flood was caused by the creation of excess credit by the American and other central banks. No one has come up with proof of my hypothesis yet; so I will be clear to state that I am working with a conjecture, but one that fits.

The American Federal Reserve loosened the credit spigot (once again) back in 2001 (the last of many that collectively have destroyed the dollar, converting the 1900-dollar to a few 1900-cents since the Fed's inception.) They have now reversed the faucet and tightened it back up, for "fear of feeding inflation" (but the damage is done.) It is these actions, in my opinion, that have caused the housing market to spread and then crunch, and therefore the Fed is directly to blame for the excessive lending that the mortgage companies have been doing.

Too bad that a scapegoat is always at hand when the weak plead for protection from a legislative body, and that the legislators have a symbiotic need for these same scapegoats to do their grandstanding and power-grabbing.

Thus inflation of the money supply has far-reaching consequences beyond those immediately apparent, such as the encouragement of the growth of bigger government.

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