Thread: Is the free market to blame?

It's sort of a trick question, because there is no such thing as a free market today. But I am writting an essay about why the real estate bubble that ended in 2006 was not the result of a failure on the part of a free market. The obvious reasoning is that there is no free market, but I don't want to miss anything.

Is there a part of the market that is "free" of regulations, taxes and subsidies?

The black market? (cue the symbol crash)

Either way... You might enjoy or find use in this special. It was on last week:
http://www.pbs.org/wgbh/pages/frontline/warning/view/

(Homepage)

I need to do some research on Fannie Mae and Fredie Mac. So far my research leads me to believe that the housing bubble was caused by irresponsible loans, backed by these government sponsored enterprises. Exactly what involvement the government has with these enterprises I suppose is what I need to find out more about.

I want to be cautious not to beat the Frontline drum too hard, but they did a special covering a lot of that, as well.

http://www.pbs.org/wgbh/pages/frontline/meltdown/


Here's some of their analysis on the Fannie/Freddie side of things:
http://www.pbs.org/wgbh/pages/frontl...es/fannie.html

Originally Posted by marcusclayman

It's sort of a trick question, because there is no such thing as a free market today. But I am writting an essay about why the real estate bubble that ended in 2006 was not the result of a failure on the part of a free market. The obvious reasoning is that there is no free market, but I don't want to miss anything.

It seems like the relevant question would be "would more freedom have worsened the crisis, or improved it? Would stricter regulations have been better?" Simply saying that it's not the fault of the free market because the market isn't really free seems to kind of miss the point. No, the market isn't perfectly free, but it does have a substantial amount of freedom. Would the bubble have been less damaging if there had been more regulation?

I need to do some research on Fannie Mae and Fredie Mac. So far my research leads me to believe that the housing bubble was caused by irresponsible loans, backed by these government sponsored enterprises. Exactly what involvement the government has with these enterprises I suppose is what I need to find out more about.

I think you will find that only a very small percentage of such loans were the "fault" of Fannie Mae and Fredie Mac.

The problem was that since housing prices had been steadily rising for a long time, lenders thought that borrowers were much less risky than they really were. It didn't matter if someone borrowed money to buy a much more expensive house than they could afford, because when they realized they couldn't make the payments they just sold it for more than they bought it for, paid off the loan, and kept the difference. Then prices stopped rising, and suddenly all these people who couldn't afford their loans were unable to pay them back and exposed for the risks they were.

marcusclayman quote;

It's sort of a trick question, because there is no such thing as a free market today. But I am writing an essay about why the real estate bubble that ended in 2006 was not the result of a failure on the part of a free market. The obvious reasoning is that there is no free market, but I don't want to miss anything.

In seeing your 'Swansong' post 'leaving the forum, "I'd rather discuss Sci-Fi Shorties" and the idea of how many ideas you could get in researching all these Science Forums. It's been a couple years, but this forums has had several threads on folks wanting to write Science Fiction. You however have picked a very complicated issue...

You might be a little careful on "ended 2006", since it's not over now and many feel the 'Commercial Property' bubble has yet to burst. For instance, Sears Holding Company (Sears, Kmart and other retailers) is basically a multi billion dollar holder of unused retail buildings or commercial property. SHLD, NYSE market cap today 8B, was near 24B. Additionally near all retailers or large interstate service organizations hold several to hundreds of properties, unable to sell, including GM, Ford and Wal Mart.

Is there a part of the market that is "free" of regulations, taxes and subsidies?

Not really...The Federal Government through the IRS, regulate any entity using the Corporation Label, to save on taxes, assistance or any reason. Your independent corner C- Store could very well be listed a Corporation. For those not however or any business is regulated to some degree by 'Local' government (City/County/State).

I need to do some research on Fannie Mae and Fredie Mac. So far my research leads me to believe that the housing bubble was caused by irresponsible loans, backed by these government sponsored enterprises. Exactly what involvement the government has with these enterprises I suppose is what I need to find out more about.

In writing, for the educational process or to get published, your going to have to do a lot of research. You also want to insert something original (if possible) or not already hashed out a thousand times. I'd agree Fannie and Freddy are in part responsible for much of the current financial problems, that brought on by the burst in Home Prices, but IMO they were neither the origin and the last problem in this ongoing cycle. Fannie, was originally a Government operation, formed to assist low income folks in 1938, but in itself and at that time until 1968 was an insignificant factor IMO. Note in the Wiki article, the process and reasons for privatizing Fannie and then the formation of Freddy in 1970.

Fannie Mae was established in 1938 [8] as a mechanism to make mortgages more available to low-income families. It was added to the Federal Home Mortgage association, a government agency in the wake of the Great Depression in 1938, as part of Franklin Delano Roosevelt's New Deal in order to facilitate liquidity within the mortgage market. In 1968, the government converted Fannie Mae into a private shareholder-owned corporation in order to remove its activity from the annual balance sheet of the federal budget.[9]

http://en.wikipedia.org/wiki/Fannie_Mae

A later problems and serious, were qualification set out by Congress which allowed lenders (Banks) to sell their contracts to Fannie/Freddy. That is the Banks, knowing qualifications, even Citizenships would not be questioned. Only a pay check stub, a bank account would qualify you, then no SS Card would be required and finally with a Federal Reserve Interest Rate less than 1% for years, sub-prime (very low interest rate with extended arms to much higher rates) and extended value loans (Up to 120-130% of the then assessed value) were granted and bought by Fannie/Freddy.

Some five million fraudulent home mortgages are in the hands of illegal aliens, according to the U.S. Department of Housing and Urban Development.

http://www.freerepublic.com/focus/f-news/2100080/posts

A summery from a post on another forum, pretty well establishes my view on the issue;

To summarize my opinion, all this post is; Without giving blame to any one person, one party, one administration, since 1965 their has been an increasingly advanced notion to increase the economy, qualifications for participants should be lowered, to stretch the values of the money supply beyond the actual values and most important the idea that under control these things could go on for an indefinite period (pyramid scheme), whether it be Social Security, Medicare/Medicaid, Welfare, Home Ownership or anything deemed politically advantageous.

I am having a hard time thinking of something original to link with the problem, I was concidering linking it to the depression, which was the reason we dropped the gold standard, which has allowed the world of credit to become the interdependant network of messes that it is.

But the deadline for the essay is too soon to write 2000 words, including something original, and elucidating on different theories(which involves researching and understanding those theories)

not enough time... plus I'm not that interested


I'm working on a sci fi short anyway, hoping to get it in by the deadline January 1

screw economics... there are too many emotional biases involved, people's livelyhoods tied in with their personal philosophies on how things should be, it spells disaster for someone who actually wants to understand whats going on... plus I agree with what little I know about the "Austrian School" theory of economics, that any attempt to use economic observations as fuel for political support is folly, like using religious tenants.

How about this...

The free market cannot be blamed because we are not a free market, however, an argument can be made that the lack of regulation led to problems. Those in control of our economic machine for the last ~40 years advocated strongly for an anti-government, non-regulation approach. The concept was that the market would fix any problems on its own. However, this assumes also that those in the businesses will know how to act in a manner which protects their bottom line and in a way that ensures the security of the company. However, even the most staunch advocates of laissez-faire capitalism (folks like Alan Greenspan who believed strongly in the Ayn Rand approach) have since conceded that they were working from a flawed premise and a faulty vision of how humans behave in the real world.

What they all failed to recognize (I'm painting with broad bush strokes here) is that we are inherently a bit greedy, and will often focus too much on short term gain, at the expense of and losing sight of long term health, viability, and stability. The lack of regulation (a free-er market) allowed people to act according to their own devices, and the lack of regulation led to castles being built in sand... a house of cards, as it were... and through time the system destabilized... and become shakier and shakier... trying to move forward on a razor thin precipice... until finally one card fell (was not saved in time by the powers that be... the marionettes who truly controlled matters despite their rhetoric of laissez-faire and free mercantilism) and took the system with it.

By having smart regulations and limits in place, we could have prevented the risk from being as systemic as it was, and mitigated the pain in suffering we're all feeling now. In short, an ounce of prevention is worth a pound of cure.

The primary argument is that if it wasn't for GSE mortgage companies buying every last mortgage they could get their hands on, banks would have been more responsible about giving home loans.

The fact that people could get home loans so easily allowed flippers to buy and sell for a profit, inflating the prices of homes.

All the while money is being printed, as credits being added up by the GSEs, and the value of the dollar goes down, favoring the people who are flipping houses for profit and driving prices up, but not those individuals and families who intend to live in a house. As money is falling in value, the quicker you liquidate your assets, the more profit you get, and this is what flippers try to do anyway. The entire system was designed, by the GSE's and FED, not necissarily intentionally, but to fail. Why it's taken this long, I do not know. It seems like it failed a long time ago, and it just took us a while for our wallets to be effected, but it took until then for most to become interested.

I am having a hard time thinking of something original to link with the problem.

marcusclayman; In writing an article, original does not necessarily mean, never thought of, in this case another angle to the problem (originality), the more controversial the better. What ever name you write under, you want that 'brand name' to be recognized. I'll give you an example, but note on a public forum (as here) the purpose cannot be notoriety.

Everyone knows the ACORN brand name or Obama, with the slightest knowledge of the 'Free Market' today. Many economist write on this daily, out of fear what the current policies could mean in future years (think you know many). Although it has been written on, an article (if published) tyeing ACORN, to 'credit standards' in the 80's, to Obama's life in the 90's, his Presidential Campaign in 2007 and election, then onto those policies being proposed for the 2010's, could be of interest.

ACORN's efforts to undermine credit standards in the late 1980s taught it a valuable lesson. However much pressure ACORN put on banks to lower credit standards, tough requirements in the "secondary market" run by Fannie Mae and Freddie Mac served as a barrier to change. Fannie Mae and Freddie Mac buy up mortgages en masse, bundle them, and sell them to investors on the world market.

http://www.amazon.com/Obamas-Connect...sin=0743580591

But the deadline for the essay is too soon to write 2000 words, including something original, and elucidating on different theories(which involves researching and understanding those theories)

Unless it's in less than 10 days, I don't buy this or that home less person would still be homeless. Some of the best books, articles, songs have been spawned in seconds. If you pursue Journalism, you'll learn to keep a list of ideas, in the event that idea can ever be used.

I'm working on a sci fi short anyway, hoping to get it in by the deadline January 1

It's been awhile, like 40 years, but the best success I ever had with SF, was writing in the third person about a relationship of an Alien and a guy from NYC. Good Luck, it's still a tough field.