Thomas Sowell on the Housing Boom and Bust

[AdamDLDixon]

en( . )wikipedia( . )org/wiki/Causes_of_the_late-2­000s_financial_crisis I trust Wikipedia more that Sowell, and the comment moderation is anti libertarian.

[derivativesarecool]

@AdamDLDixon Sorry, I trust an economist more than an encyclopedia that can be readily edited.

[AstroAntaAposAnarch]

@derivativesarecool I second you there. I'm a community college sophomore, and all my professors would kill me if I cited "wikipedia" in an analytical paper.

[86austinc86]

VOTE RON PAUL 2012

A vote for Dr. Paul is a vote for yourself. He wants to limit gov intrusiveness in our lives & allow US to make our own choices. Stop politicians and the elites from thinking that they are so smart that they know how to run our lives better than we do. He is one of the few politicians that will make difficult decisions, he will balance the budget by his 2nd year, while other politicians plan to balance the budget after their term

LISTEN, UNDERSTAND, DECIDE. RON PAUL 2012

[brazenhubris]

They're using a lot of words when they could just say the following:

The government forced banks to contradict the nature of banks by loaning money unwisely, but made it wise by creating Fannie May and Freddie Mac to shift the "risk" for those bad loans to the American people in contradiction of the purpose of the constitution, and that every oath-taking government official involved is guilty of treason. Visit thesaneparty d com and join the fight.

[DawnOfTheDead991]

I think the housing prices in parts of California have more to do with demand than anything else.

[ComoAumentarBusto]

very good discussion

[keithradamsstatus]

I'm not sold on their explanation. It seems like this was caused by a perfect storm of government policy - deregulation - and the feds low interest rates that caused the GFC.

[knelson6599]

@keithradamsstatus That and obscure financial instruments i.e. derivatives.

[imblessedso]

@keithradamsstatus

I agree that mechanically there were many contributing factors, but they could have never converged in the way that they did without the normalizing of irresponsible lending practices in the housing industry brought about by certain social policies. Once this occurred, it opened the door to wealthy speculators and everything else.

[comptonproduction]

THOSE AREAS ARE CALLED HOT REAL ESTATE MARKETS.

[LimeZYX]

Excellent. I was wondering where I could find this entire discussion. Sowell is brilliant.

[4k8t]

Finally got the book on my kindle, part way through.

I think it can be put this way. If someone else, like the taxpayer or as the case was Fannie and Freddie, assumes the risk of default by buying shaky mortgages for which they reduced their standards to do, then why should banks bother to be so scrupulous about the quality of the mortgage? Not the whole world, but enough to explain something of how things could start to go really bad after that.

[theleemeister]

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JULY 19, 2011 - Ames Straw Poll Moneybomb!

[pretorious700]

Dr. Sowell is wrong about the limited scope of the original defaults. It was pretty much everywhere in the US.

[comptonproduction]

THERE IS NO SUCH THING AS ECONOMIC, THAT'S BS. HOW CAN THERE BE WHEN EVERYTHING IS CONTROLLED BY THE" EAST COAST CORPORATE MAFIA".

WE TALK ABOUT FREEDOM, THAT'S A JOKE IN AMERICA. WHERE THE FREEDOM WHEN EVERYTHINGS IS CONTROLLED.

[ftpwh33]

@comptonproduction Ron Paul 2012



[raguiler1234]

Ron Paul 2012!

[christo930]

I am only 1/2 way through this video and I can't believe that they haven['t mentioned the federal reserve's GIGANTIC contribution to the housing bubble. ARMS simply wouldn't be possible with the short term rates being so low. Foreigners involved who usually wanted safe investments were unable to go to bonds beause the bond yield was so low. So wall st responded by bundling mortgages and marking them AAA. But without the low fed rate NONE OF IT COULD HAVE HAPPENED!!

[legacyns1]

@christo930

Get Sowell's Book "The Housing Boom in Bust". In the first chapter he lists the casts of characters.

The Federal Reserve System has a general authority to regulate banks across the country as well as specific powers to take actions which affect interest rates and the money supply. Given the great importance of the level on interest rates in the home mortgage markets, the Federal Reserve is a major player in that market....

[pretorious700]

"What was Barney Frank thinking?" Dr. Sowell's answer was funny, but I can think of several funnier ones.

[Slipknotyk06]

Politicians should not be involved in this market for the reason that the interests of the market and the interests of the politicians are at odds.

The market wants BETTER home owners, while politicians want MORE home owners. When you push for MORE home owners, the quality of the home owners will decrease. When you push for BETTER home owners, the number of home owners will decrease while the market becomes more structurally sound. Not all are meant to OWN a home, and some SHOULD rent.

[spectrum2000now]

Both Government, Banks, and its constituents has a part for their errors. Hope this time all of us had learn from the crisis.

[CytherLynx]

@spectrum2000now no. this was clearly intended and also a result of the system. lobbiests put laws in before the banks failed, to ensure they'd be bailed out. the banks knew if they failed, they'd be bailed out, so they took excessive risk, took excessive profit, but ultimately failed; but the debt goes to the tax payer.

you've just paid for some guy's $100 an hour 'maid' and 50million dollar house, and you take that attitude? when the people give up, all is lost.

Ron Paul 2012

[mariner499]

Dr. Sowell is not aware that the Fannie and Freddie only bought loans that meet fairly strict lending standards. They did not buy exotic, no-doc, IO, etc. mortgages. Instead, those loans were securitized by Wall street banks and sold to private clients without government involvement. Those so-called "non-agency" bonds were the first to fail and took the rest of the market with them.

But then again, he's an intellectual with no real-world experience and no responsibility for his statements.

[alaskahelo]

@mariner499 Dr. Sowell is well aware of what fannie and freddie did, if you had read Dr. Sowell's book, you would understand that.

[MrNonintendo]

@mariner499 he's probably one of the most "real-world" experienced intelectual. Look up a little about his history. And also "real-world", are you suggesting he lives in a fake one?

[xHippieHunter]

what a genius!!!!!!!!!!

[DaMav]

Thomas Sowell is one of the best analysts anywhere. Always a privilege to hear him speak

[jadedmastermind]

I love his book "The Vision of the Anointed"

[Peterb605]

When we have so many intelligent people around us, why is it that we keep choosing the brain dead to lead us? Are we really all brain dead?

Do we ever ask ourselves, what is wrong with me? Is it not "We the People"

that are in charge of our destiny?

As a Veteran, I'd ask, "do I want to follow these people, that are called our leaders

in to battle?"

[KasperInABox]

@Peterb605 in buisness.. people that give the wrong answers but the once you want to here always gets promoted.. at leased in the big boy buisness like the government... thise people are the most valuable because they get people to go where you want them.... so yes i guss you can say that we all are a little brain dead.... i rather say that the buisness world has a rotten core.... please pardon my spelling...

[frankiedetorie]

@Peterb605 Our leaders are not weak of mind. They are corrupted by the incentives of democracy. They do not use the rhetoric and policies of rationality. They use the rhetoric and policies of vote maximisation.

Thomas Sowell is employed to be intellectual and thus he sounds intellectual. A politician in the same position probably would also.

[robertquentincobb]

I wish Thomas Sowell was our first Black President! This guy is Awesome..

[Karen41872]

Dr. Thomas Sowell is one of the most brilliant people of all time.

[AndroidPolitician]

lol banks deregulated in the 80s which allowed for ARM loans to even exist.

Not just that, but the CRA only covered 6% of subprime loans and fannie and freddie covered 24%.

The government only insured 30% of bad loans but no, it was those poor people that caused this mess.

[chkenhuntr3]

@AndroidPolitician From 2002-2007 Fannie Mae's loans were: 62% negative amortization, 84% interest only, 58% subprime, 62% required less than 10% downpayment. Freddie Mac's 72% negative amortization, 97% interest only, 67% subprime, 68% required less than 10% downpayment. They account for 80% of the total mortgages through this period and held 1/2 of subprime mortgages.

[chkenhuntr3]

@AndroidPolitician Also look at the individuals involved in deregulation which occurred mostly in the late 90's through taking away Glass-Steagle and most de-regulations on derivatives which were pushed by Clinton and now Obama advisors Larry Summers and Robert Rubin. And dont forget Geithner who was overseeing many of these banks during the 2000's at the NY Fed. But the biggest reason for housing was short term interest rates lowered to 1% by Fed.

[TRZbebop675]

If anything caused this crisis, it was an inability to see things from a long-term perspective.

[SeeProfileForDetails]

@TRZbebop675 You said: "it was an inability to see things from a long-term perspective."

Yep That's why big centralized government crap doesn't work. What I think caused the crisis though was more the ignorant americans themselves, who wanted to 'live the dream' and buy a home that they couldn't afford. The government and businesses assisted these ignorant fools in getting their unreasonable homes that they wanted. Like kid in a candy store who can't afford the candy so he steals it.

[skinnydude911]

If you dont understand the facts you will just have to stay IGNORANT and vote for an elite to run your life. I am with Sowell!

[stickyback]

This is right wing ideological dribble. Free market capitalism is a disaster, we dont have a free market.

[ThePhilBest]

@stickyback: what do you mean? You contradict yourself. We don't have a free market. True. Therefore, something other than the free market was responsible for this mess. Also true. That's the whole point. Thomas Sowell is one of the wisest and noblest men on the planet today, there is hardly anyone like him, of whom it should be said that most of his books SHOULD be read by everyone. It says a lot about you if you don't like him.

[LordVigeous666999]

if we don't have a free market, how is it a disaster??

[Buergs323]

@stickyback my guess is that you didn't watch the entire video...all sowell did was give facts...

[AndroidPolitician]

@Buergs323

Sowell's "facts" where that poor people taking on bad loans (and the government subsidizing them) caused this crisis.

He never mentioned how the boom resulted from deregulation which created a viscous cycle of buying houses for no money and then re-selling them to make up the defaulted loans.

[heyzeusful]

@stickyback HAAAAAAAAAAHAHAHAHA. well put. very erudite. 

[RoniCMaster]

What a moral hazard.

[MrHerferd]

@ GreatWhite Sowell didn't mention lack of available land but laws and restrictions diving up prices.

[GreatWhiteBookHunter]

This video isn't in any way related to reality. Typical rightie illogic. There is plenty of available land to build on in Nevada, so why are 1/3 of the mortgages under water? There were record numbers of new homes being built in the middle of the decade, but the lack of available land was the cost of a bubble? Utter hogwash.

Additionally, Freddie and Fannie held only 13% of the subprime mortgages in our country. A contribution, for sure, but certainly not the scapegoat this guy says

[ThePhilBest]

@GreatWhiteBookHunter

The Federal government owns most of the land around Las Vegas, and does not sell it fast enough to keep land prices down. It does not disprove what Thomas Sowell is talking about.

Freddie and Fannie "....held only 13% of the subprime mortgages...". When? When the music stopped? The crucial thing was that they had latterly been buying and repackaging 70% of them. Lehmann Bros was wiped out because they were left holding lots of these.

[squeaks828282]

If you watch the video of Thomas Sowell discussing the role of intellectuals, he explicitly says that those speaking outside of their own field of knowledge should not be considered as experts. But here, he addresses the question of global warming/carbon trading by giving his "expert" opinion on climate science, and says "global warming" cannot be "manmade" etc...

I call shenanigans on you Sowell!

[MarkNanneman]

@squeaks828282 How can you be an 'expert' on a made-up field like "Climate-Science". It's like being an expert in Earth-flatness science

[Ipetratz]

@squeaks828282

The problem with the intellectuals which he speaks of is that they generalize their expertise in a particular field to better judgment, morality and wisdom overall.

Sowell is an economist. His job is to look at pools of data and decipher its implications and meaning. When he talks about "income disparity" or the New Deal, he is looking at fields of data, including the history, laws, employment, and the general time period which it took place in. That is what his job is to do.

[techsupportguy101]

@Ipetratz Good anaylzation, i was thiking the same thing.

[JohnColt]

He says "the not-for-profit organizations could...lower the cost for us all; why don't they?"

... So, what's the answer? Why don't they????????

[Aegius]

@JohnColt B/C gov pays their bills. When gov pays the bills, no one cares about cost as the taxpayer just foots the bills.

[ednorandrewrowe]

Worth watching a learned-AND BLACK-man give view of financial collapse resolutely unreported by CNN, AP, old media. Gambling on Wall Street? Barney Frnk 2003, "Lets roll dice some more on Fannie Mae" giving bad loans

[pragmatismnotidealis]

5,000 views. Meanwhile obama has over 3 million views. What a disgrace.

[musclecarlo72]

What a perfect statement. So few words, and yet it explains exactly the entire problem facing our country.

[ThePenWolf]

@pragmatismnotidealis Popularity doesn't equate to truth.

[Charlesperalo]

@pragmatismnotidealis That's because the people are stupid and not willing to learn the truth. Yet they want to listen to the people that caused this mess,because they got political. Barney Frank wanted Fannie and Freddie to provide loans to poor people. He was only thinking of his political career with that and nothing more. We need to find away to get this video out and get the truth out.

[RoniCMaster]

@Charlesperalo Well, that's an inherent weakness of elected governments. They have little incentives of doing the hard but necessary thing but every incentive to do whatever that makes the majority of voters happy. They've always sought 2 things, a re-election and an untarnished administration. The problems doesn't need to be solved, just halted for the next administration to take care of.

[o2johnnybravo]

Questfortruth86 Why are you obsessed with stating there was enough money in the economy? That is not in question (monetary contraction occured after the Stock Market crash of 1929- irrelevant to this). Sowell states that the highly localised issues of particularly high pricing is where it started, 'and it snowballed .'. In any event, the free market was not in operation. Governments set interest rates. Government forces banks to lend to anyone, wholly contrary to a free market.

[Questfortruth86]

He has no theoretical explanation for business cycles--just ad hoc explanations which are easily picked apart and demolished. The typical monetarist explanation has been refuted, and this recession only highlights this indubitable fact. It's simple really: without a theoretical explanation for the boom, you cannot, in anyway, deduce a logical explanation for cyclical fluctuations in general. I like professor Sowell, but he is a liability for those who wish to defend the market.

[JohnBreadForger]

I can see by your posts that you don't understand what he is explaining nor business cycles (probably don't understand math either).

[3055DOG]

@Questfortruth86 - The Community Reinvestment Act, Fannie Mae & Freddie Mac operating as quasi-govt entities that aren't effected by the free market, govt intervention and regulation that was designed to influence society as social engineering to get poor people who couldn't afford homes into homes. It's not a theory, it's what did it. Nor does it need to be complicated - like Sowell mentions elsewhere, there's the distilled knowledge of millions that effects the market, not some intellectual.

[JohnBreadForger]

He doesn't understand the topic. He's just going over talking points he jotted down from Austrian's, which he doesn't understand.

I don't think he understands the consequences of the facts either, like you point out with the government involvement.

[Questfortruth86]

This guy is a terrible economist. A good guy, but a terrible economist. His ad hoc explanations take us back to pure historicism. Housing prices where high everywhere, and not "just in certain areas." And the adjustable rates were directly tied to the federal funds rate, which is controlled by the FED. But the Chicago school cannot explain this recession--you cannot say that there wasn't enough money in the economy.

[devildog1369]

Terrible economist? Jeez...what a schmuck. Frank, Dodd, Fannie and Freddie had nothing to do with this mess? No impact on Fed Funds?? Your misunderstanding of basic economics and the Chicago school is only eclipsed by your leftist ideology.

[Questfortruth86]

I don't support monetary central planning, anti-trust, or negative income taxes. This makes me much more "conservative" than Dr. Friedman and Sowell combined. Either way, the Chicago school has never been free-market oriented; they were only given this title because they weren't socialists like Keynes, Sraffa, Robinson, et al. Their capital theory has been entirely refuted by Hayek and the Austrians (see, "Mythology of Capital" by F.A. Hayek). And their monetary theory is too simplistic.

[papershock]

@Questfortruth86

the causes of this recession is not the failure of the sub prime housing, mortgage backed securities, collateralized debt obligations, or credit default swaps, these are symptoms of the greater disease. Which the true cause points to the fed for leaving fed funds at 1% too long in response to dotcom bust and 9/11. Indeed it was the cheap money that allowed these foolish investment vehicles to be profitable in the first place.

[stuck8706]

16:01

[zmbaker]

Specultr, his intellectual pedigree and affiliation with the Hoover Institution are testimony to his bona fides. What exactly testifies to yours?

[Thill029]

obama should take 30 minutes out of his destroying-the-economy schedule and watch this interview.

[Daniel44125]

He doesn't mention how the Federal Reserve's easy credit and low interest rates raised demand for homes creating the artificial housing prices. Fanny and Freddie where leveraged up to 1000 to 1 The question people never ask is, where did the banks get all that money to loan to people. Banks create money out of thin air. If you put 1000 dollars in a bank, it can create and lend 10,000 out of thin air. Freddie and Fannie can create 30,000. Seems there is a scam going on people should know about.

[Freedomwarrior2]

Thats exactly what he's taliking about

[Aegius]

Actually they don't create the money from thin air. Investors provide funds in lending to get a return.

[specultr]

Demonizing Barney Frank during the watch of a Republican president and Republican congress is laughable. Sowell has degrees from impressive universities but has never become a serious economist. He doesn't write or speak intelligently. He's even being fed his lines in this "interview." I have never seen professional economists quote Sowell on any issue. He is only an authority to the uninformed layman.

[mrjohnfantastic]

Sowell was closely associated with Nobel-winning Milton Friedman. Does that count?

[Cyrus992]

Why the heck the government has to step in the mortgages and land policy? Where is the capitalism!!??

[chickenbeak119]

Go Sowell!

[joejitsu26]

Dr. Sowell once again has showed us why he is one of the Greatest Intellectuals of our time. He is a true great man.

[Winston2004]

excellent!

[Krampfarsch]

great interview, great questions and great answers.

thank you very much hoover institute

greetings from germany