Don't Blame Capitalism - Peter Schiff

While many would like to blame free markets for the housing and financial crisis, free markets are not the cause. Reckless Wall St activity was a symptom of governmental intervention through various forms including the Federal Reserve, Fannie and Freddie, the FHA, HUD, Community Reinvestment Act and others which were the root cause of the crisis.

http://www.washingtonpost.com/wp-dyn/content/article/2008/10/15/AR20081015031...

Tags: capitalism, free market, housing crisis, financial crisis, Peter Schiff, bubble economy, Federal Reserve, Fed, libertarian, Austrian economics, laissez-faire

Category:

News & Politics

Tags:

• capitalism
• free market
• housing crisis
• financial crisis
• Peter Schiff
• bubble economy
• Federal Reserve
• Fed
• libertarian
• Austrian economics

[liverleef]

Funny how the biggest offender in the crisis wasn't the heavily regulated banks, it was the independent mortgage companies. Care to explain their motivation for churning out subprime mortgages at an unprecedented rate?

[ViewpointLibertarian]

@liverleef Sure. The Federal Reserve under Greenspan manipulated the money supply (as it always does, that is its purpose) to bring about rock bottom interest rates which allowed mortgage companies to institute new teaser ARM mortgage which fed the artificial bubble in the housing market. Check out an explanation of the Austrian Business Cycle Theory on youtube (Thomas Woods explains it very well). The root of the problem is the Federal Reserve created by Congress in 1913.

[liverleef]

@ViewpointLibertarian Funny because Ameriquest and Countrywide employees stated their motivation for producing subprime mortgages was to sell them on the secondary market. In fact commission for selling a subprime mortgage was around 12%, but prime was only 3%. This was because subprime mortgages sold for more on the secondary market.In the case of Ameriquest, they engaged in fraud in order to get mortgages to sell. Sure, the Fed helped fuel the fire but did not cause the crisis.

[ViewpointLibertarian]

@liverleef What made subprime mortgages attractive in the first place? Easy credit that encouraged people to sign up for them and which masked he horrible malinvestment that it was. The Fed was the cause because the bubble was only made possible from credit that came from the printing press of the Federal Reserve. The banks and lenders all screwed up big time with enormous malinvestments, but that was a result of the Fed's easy money policy.

[liverleef]

@ViewpointLibertarian Subprime mortgages took off because lenders could now lend to people with horrible credit and still make a profit because the risk was transferred to investors. Simple regulations could have prevented that. Even if interest rates were higher, this whole thing would have still happened because the same incentives were at work. Little risk to the lender and uninformed investors.

[ViewpointLibertarian]

@liverleef If interest rates were higher, these loans wouldn't have been possible. The teaser rates and ARMs were so prevalent because of easy credit from the Fed. And what about Fannie and Freddie? They got in big to the subprime market and helped to inflate it. Don't forget about HUD and the Community Reinvestment Act that all added fuel to the fire. But again, the whole cause of this enormous problem was loose credit that came from the Federal Reserve.

[TheBlitz1]

people need to understand not all businesses are corrupt or unethical

just the ones that work in collusion with the government

[SirTenenbaum]

Peter Schiff, perceptive as always. Big government together with big business causes big problems.

[liverleef]

@slayin4free Only 9% of mortgages in CRA neighborhoods were subprime. That doesnt even mean that they were all tied to the Community Reinvestment Act, just that they were in CRA assessment areas. Since unregulated mortgage companies would have counted for much of those subprime mortgages it makes you wonder how anyone who can perform basic math can pin the housing crisis on the CRA.

[liverleef]

@slayin4free Also, the CRA doesn't apply to independent mortgage companies and they were hands down the biggest issuer of sub prime mortgages. I would love for one of you libertarians to explain how the government "forced" Countrywide to become one of the biggest producers of subprime mortgages to people who clearly could not afford it.

[liverleef]

@slayin4free Nobody forced banks to give mortgages to people with bad credit. I assume youre speaking of the CRA. It says banks should demonstrate that they are giving mortgages to people in neighborhoods where they have branches USING SOUND BANKING PRACTICES. In other words, don't completely refuse to invest in low income neighborhoods where you have branches but don't hand out loans to people who can't afford them either.

[slayin4free]

@liverleef You just made your opponents point for him. Who do you think not only encouraged but forced banks to give loans to people with bad credit. The government did in the name of non-discrimination and the utopian idea that every one deserves to own a home. Of course I would love for everyone to have a home, but look how much worse off these people are now. When the government gets involved it creates unintended consequences.

[liverleef]

Freddie and Fannie were participants in the crisis but again, not the cause. They certainly helped. There is no way the CRA had any role in the crisis. Studies have shown that most lenders considered CRA mortgages somewhat profitable and only a small fraction of them were subprime. How would these loans have been impossible without low rates? Even if interest rates were much higher, people with poor credit would have been all over interest only loans.