Tuesday, August 17, 2010

Housing markets

One of the Congressmen I find most irritating, Barney Frank, was in the news yesterday continuing to spout nonsense about the housing market:

“We’ve already abolished Fannie and Freddie,” he said, referring to the government takeover. “Yes, we waited too long to fix it. But the money is not being lost by anything they are doing now.”

This is simply wrong. As the article acknowledges the government is propping up the housing market by providing subsidized mortgages. But subsidized is just another way of saying money losing. Perhaps under the circumstances there is something to be said for this policy (although I oppose it). But pretending it is not costing the government money is dishonest. And they haven't "fixed" anything.

Also it is easy to underestimate the perverse effects of government subsidies. I might currently be in the market for a house but I am reluctant to enter a market in which I would be competing with people playing with government money, no money down government backed loans that they can easily walk away from if prices move against them.

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