print“In 2002, Joseph Stiglitz, the Nobel economics prize winner and two co-authors (Jonathan Orszag and Peter Orszag), published an article (‘Implications of the New Fannie Mae and Freddie Mac Risk-based Capital Standard’) in Fannie Mae Papers. They argued that Fannie Mae’s and Freddie Mac’s risk-based capital standard made it very unlikely that the two GSEs (government-sponsored enterprises) would ever require a government bailout. Their results suggested that ‘the risk to the government from a potential default on GSE debt is effectively zero,’ even in ‘the financial and economic conditions of the Great Depression.’ The authors apparently underestimated the possible credit losses from a deep recession, besides ignoring the possibility that the quasi-nationalized housing market and the GSEs could themselves generate a recession. Fannie Mae and presumably the learned authors are not especially proud of this paper, which has disappeared from the GSE’s site,” but our friend Pierre Lemieux, Canadian economist and libertarian extraordinaire, has reproduced it on his site.
So what if Stiglitz is wrong most of the time? Other than some libertarians and devotees of the school of Austrian economics, most pundits make a perfectly good living being mostly wrong.
Public goodwill runs eternal for these failed “experts.” Neoconservative talking twits had been wrong all along about the invasion of Iraq; They consistently dished out dollops of ahistoric, unintuitive, and reckless verbiage. Yet they’ve retained their status as philosopher-kings.
Why not left-liberals like the Keynesian Stiglitz? (Not to be outdone, Republicans are also Keynesians. Or Republikeynsians.)
READ http://www.house.gov/paul/congrec/congrec2002/cr071602.htm 7/15/2002:
EXCERPTS: “Mr. Speaker, I rise to introduce the Free Housing Market Enhancement Act. This legislation restores a free market in housing by repealing special privileges for housing-related government sponsored enterprises (GSEs)….
….. the line of credit distorts the allocation of capital. More importantly, the line of credit…on behalf of the government to engage in a massive unconstitutional and immoral income transfer from working Americans to holders of GSE debt…..Ironically, by transferring the risk of a widespread mortgage default, the government increases the likelihood of a painful crash in the housing market….capital is diverted from its most productive use into housing…. the boom in housing prices cannot last forever. When housing prices fall, homeowners will experience difficulty as their equity is wiped out….. the Federal Reserve… purchasing GSE debt and pumping liquidity into the housing market.. cannot hold off the inevitable drop in the housing market forever…postponing the necessary but painful market corrections will only deepen the inevitable fall. The more people invested in the market, the greater the effects across the economy when the bubble bursts….. it is time for Congress to act… before the bubble bursts and taxpayers are once again forced to bail out investors….”
The liberty cat may be out of the bag. Both Demoncraps and Repugnicans now realize that Liberty equals prosperity but they will only desire the minimum.
This depression, there will be many voices that will not allow the blame to be shifted from the central bankers.
May God grant that Ron Paul destroy the third central bank of the United States.
GSE = Gonna Sink Everyone
Thomas E. Woods’ Meltdown (you can order it on mises.org.) has an excellent section of what he called the “culprits” behind the bubble that burst during Bush’s term. He discusses Fannie and Freddie along with the Community Reinvestment Act. Although the major culprit, according to Woods, is the Federal Reserve, he delivers some good dunce caps to supporters of the two GSE’s, particularly to those who categorize them as the private sector. .
Myron needs to know that it’s called socializing risk, and privatizing gain.