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Market Failure eh?

Sunday, January 1, 2017 11:43

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I bought The Big Short (http://www.imdb.com/title/tt1596363/) which is a good watch. It’s about the 2008/9 financial crisis using the vehicle of the experiences of a few people who saw it all coming and worked out how to short the US housing market.

And as you’d probably expect from Hollywood it doesn’t tell the whole story, It starts at what I think of as halfway up the argument. In particular it makes only passing comment on the role played the USA’s Government Sponsored Enterprises (GSE’s); Fannie Mae and Freddie Mac (and Farmer Mac) in wildly fanning the flames of credit expansion. Nor does it deal with the ‘anti red-lining’ legislation and its exploitation by ‘community organisers’ using companion anti-discrimination legislation against banks to drive lending to unsuitable borrowers.

But serendipity strikes again. This little gem from here:-

Even before he became president, as I noted a week later, no US politician had done more to precipitate that banking crash. As a young politician in Chicago, he had in 1995 played a leading role in the amending of the Community Reinvestment Act, requiring US banks to lend billions of dollars to buy homes for millions of poor, mainly black Americans, guaranteed by two giant mortgage associations, Fannie Mae and Freddy Mac.”

Wiki on the Community Reinvestment Act

(Cards on the table – I’ve always considered Obama as a clever vacuous vain economically ignorant largely incompetent dangerous fool).

Every time you bother to look into some financial crisis or other behind it you find some ill thought out government intervention. And just to illustrate the point I am also reading Legislating Instability by Tyler Beck Goodspeed; an analysis of the Scottish banking crisis of 1772.

And guess what? Yep. Yet again the roots of that crisis were grounded in an earlier age’s version of ill thought through intervention. Then the Chartered Banks lobbied for legislation to protect themselves from competition (they naturally argued that it was to protect the public) and in doing so confirmed Adam Smith’s saw about how businessmen will come together to work out ways to defraud the public by seeking special privileges from government.

Governments and money. You know they don’t mix.

Source: http://markwadsworth.blogspot.com/2017/01/market-failure-eh.html

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