http://wonkroom.thinkprogress.org/2008/10/08/mccain-progressive-housing/ Thu, 26 Nov 2009 16:42:01 -0500 http://wordpress.org/?v=2.8.5 hourly 1 http://wonkroom.thinkprogress.org/2008/10/08/mccain-progressive-housing/comment-page-1/#comment-2654 Mymic Thu, 09 Oct 2008 18:16:06 +0000 http://wonkroom.thinkprogress.org/2008/10/08/mccain-progressive-housing/#comment-2654 The root of the financial crises in my opinion is certainly not the mortgage crises. The root is monetary policy and government intervention. When our central bank decides to make the prime rate 1% what does that do to money supply? It gives everyone access to cash. When everyone has access to cash then everyone has the option to buy a home and many did. This drives demand on homes up, which in turn drives prices up. This creates a mortgage bubble. So, when we raise that prime back up the reverse happens, but many companies over leveraged themselves and this creates a credit crunch. The most efficient plan out of the crises is do nothing. Efficient banks will renegotiate on their own out of self interest. The bad ones will not and may not survive. Bailouts and plans continously reward inefficiency creating artificially high prices and unjust competition for companies that perform well. FDR's plan was not so great, we should get off that model. We were basically in a 16 year recession. So I am not sure why we hold that up as any kind of ideal model. The people that elect officials will one day learn that the best action is no action, that in this thing called life you actually have to fend for yourself sometimes. However, that does not win elections. The root of the financial crises in my opinion is certainly not the mortgage crises. The root is monetary policy and government intervention. When our central bank decides to make the prime rate 1% what does that do to money supply? It gives everyone access to cash. When everyone has access to cash then everyone has the option to buy a home and many did. This drives demand on homes up, which in turn drives prices up. This creates a mortgage bubble. So, when we raise that prime back up the reverse happens, but many companies over leveraged themselves and this creates a credit crunch. The most efficient plan out of the crises is do nothing. Efficient banks will renegotiate on their own out of self interest. The bad ones will not and may not survive. Bailouts and plans continously reward inefficiency creating artificially high prices and unjust competition for companies that perform well.
FDR’s plan was not so great, we should get off that model. We were basically in a 16 year recession. So I am not sure why we hold that up as any kind of ideal model. The people that elect officials will one day learn that the best action is no action, that in this thing called life you actually have to fend for yourself sometimes. However, that does not win elections.

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