Home Values: Government Regulation Doesn’t Work


Government has no place in the market.  In so much that the government needs to spend money on things that constitute the proper role of government, there is nothing that the State does that is expressly efficient.

The State is unable to address the needs and/or wants of the populace well enough to signal an efficient use of scare resources; resources that have alternative uses.  The government can, by force of gun or sword, dictate where money is spent, to be sure.  But that government has neither the ability or will to intuit that “will of the people who is the mark of a dynamic market.

What does this mean?

It means the government is incapable of spending your money better than you are.

It is true, always has been, that there is only one careful spender of your money*:

That one careful spender of your money is….you.  And only you, of course.

So, when government comes along and legislates a social “get well” program; beware!  Be very wary!

Tangentially, and before we begin, consider this.  The only way that government can spend your money is to first take it away from you.  Until THAT happens, the government has no money to spend.

Now, back to the point.

People spend their money is such ways and manners that they feel suit themselves.  In other words, people will spend their own money such that their own needs and or wants are best met.  AND, by the way, they will typically spend that money very carefully.

It’s only when people [the government] spend other people’s money that they spend it most foolishly.

For proof of this concept, consider the price of this commodity.  Where the price is indicative of the perceived value of that same commodity:

Pretty clear indication that the demand for that thing is low.  Or, OR, the supply of that thing is pretty high.  Or both.  Whatever the case may be, people don’t wanna buy that thing at the price listed.  So it continues to go down.

But, when there is a reason, a GOOD reason, government can step in and FIX that “thing” market so that it takes off and other “thing” markets related to that first “thing” market rise too.  Right?

Wrong.  Look:

Did’ja see what just happened?  The first graph is an adjusted version of the second unadjusted graph.  See, the second graph is the real change in value of a home versus last year’s price.  The first graph just deletes the “up” segment of the second one and slides the “down” version down.

What do the “up” version represent?  You guessed it – government manipulation of a market.  That’s where the up comes in.  The down?  Yeah…that’s where the government manipulation ends:

“The rebound in prices seen in 2009 and 2010 was largely due to the first-time home buyers tax credit.  Excluding the results of that policy, there has been no recovery or even stabilization in home prices during or after the recent recession. Further, while last year saw signs of an economic recovery, the most recent data do not point to renewed gains.”

Awesome isn’t it?

Anyone who tells you that government “stimulus” work is crazy.  Run away from them and hide your kids.  Don’t believe me?  Look at this cool graph:

Car Sales

Wanna know what that is?  Car sales.  Notice the trends and the funkyness going on?  See where the graph is all like going down and then flattens out?  And then starts to rise only peak at an abnormal level?  Yeah…and then crash again only to go right back to rising pre-peak levels?

Yeah–“Cash For Clunkers”

The gains were offset by the slump only, in the end, to give way to the fact that Americans were buying more cars anyway.

Like I said—run away.

*P.S. I man love me some Milton Friedman

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4 comments
  1. Milton Friedman has been completely discredited over and over again. Conservative policies (deregulation) created the housing bubble and the resultant bust was inevitable. It happens every time we move towards a free market economy.

    You right-wingers are crazy. Insanity is doing the same thing over and over and expecting a different result.

    • pino said:

      Ben Hoffman June 1, 2011 at 11:01 pm (Edit)

      BEN! How are ya? Hope you had a great Holiday weekend.

      Conservative policies (deregulation) created the housing bubble and the resultant bust was inevitable.

      I’ll bet you and I have been over this several times before.

      1. The government, both R’s and D’s, created an incentive to buy homes.
      2. The government, both R’s and D’s, passed laws requiring banks to lend to people who couldn’t pay that loan back.
      3. In order to help those banks continue to make those loans, the government bought them.
      4. Those loans were packaged and sold. Some high risk, some low.
      5. To the extent those loans were misrepresented as low risk, you may be right that a “crime” took place
      6. It makes no sense to to lower the speed limit to 45 when someone goes 65 in a 55 zone.

      It happens every time we move towards a free market economy.

      When you look back in time, the places and times in history when mankind is the most free and most well off are when markets are the most free.

      You right-wingers are crazy. Insanity is doing the same thing over and over and expecting a different result.

      Where will you find your angels to run our economy?

      • 2. The government, both R’s and D’s, passed laws requiring banks to lend to people who couldn’t pay that loan back.

        What laws were they?

        When you look back in time, the places and times in history when mankind is the most free and most well off are when markets are the most free.

        Without rules and oversight, corruption runs rampant. Every time.

      • pino said:

        What laws were they?

        In 1995, the regulators created new rules that sought to establish objective criteria for determining whether a bank was meeting CRA standards. Examiners no longer had the discretion they once had. For banks, simply proving that they were looking for qualified buyers wasn’t enough. Banks now had to show that they had actually made a requisite number of loans to low- and moderate-income (LMI) borrowers. The new regulations also required the use of “innovative or flexible” lending practices to address credit needs of LMI borrowers and neighborhoods. Thus, a law that was originally intended to encourage banks to use safe and sound practices in lending now required them to be “innovative” and “flexible.” In other words, it called for the relaxation of lending standards, and it was the bank regulators who were expected to enforce these relaxed standards.

        And more mandatory fun:

        Fannie and Freddie used their affordable housing mission to avoid additional regulation by Congress, especially restrictions on the accumulation of mortgage portfolios (today totaling approximately $1.6 trillion) that accounted for most of their profits. The GSEs argued that if Congress constrained the size of their mortgage portfolios, they could not afford to adequately subsidize affordable housing. By 1997, Fannie was offering a 97 percent loan-to-value mortgage. By 2001, it was offering mortgages with no down payment at all. By 2007, Fannie and Freddie were required to show that 55 percent of their mortgage purchases were LMI loans and, within that goal, 38 percent of all purchases were to come from underserved areas (usually inner cities) and 25 percent were to be loans to low-income and very-low-income borrowers. Meeting these goals almost certainly required Fannie and Freddie to purchase loans with low down payments and other deficiencies that would mark them as sub-prime or Alt-A.

        The decline in underwriting standards is clear in the financial disclosures of Fannie and Freddie. From 2005 to 2007, Fannie and Freddie bought approximately $1 trillion in sub-prime and Alt-A loans. This amounted to about 40 percent of their mortgage purchases during that period. Moreover, Freddie purchased an ever-increasing percentage of Alt-A and sub-prime loans for each year between 2004 and 2007.

        And the Dubya:

        The biggest barrier to homeownership is often accumulating funds for a down payment. In June 2002, President Bush proposed the American Dream Downpayment Fund to help low-income families take much-needed steps to own a home of their own, and announced the goal of increasing the number of minority homeowners by at least 5.5 million before the end of the decade.

        President Bush’s aggressive housing agenda to dismantle the barriers to homeownership includes providing down payment assistance through the American Dream Downpayment Fund; increasing the supply of affordable homes through the Single-Family Affordable Housing Tax Credit; increasing support for self-help homeownership programs like Habitat for Humanity; simplifying the home-buying process; and increasing home-buying education.

        Without rules and oversight, corruption runs rampant. Every time.

        List me the angles you would have run your government commissions.

        Yes.

        Yes, there will be corruption within the free market. And we have laws that address that corruption. However, that is NOTHING compared to the corruption within government regulated agencies. There is nothing to indicate that the government is able to restrict criminal activity within it’s organizations anymore than within corporations. In fact, when the criminals ARE the government, we are MOST in trouble.

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