The Housing Boom

By -

Sowell begins chapter one by chronicling the housing boom, as reflected in the rise of the median sales price for single-family homes by one-third from 2000 to 2005 ($143,600 to $219,600).
In some places the rise was even sharper. Over those same years, the median home price in New York rose 79 percent, in Los Angeles 110 percent and in Sand Diego 127 percent. In coastal California, the rise was especially sharp--and so was the later fall. (p. 1)
Then he presents the cast of characters that play an important role in the housing market. Obviously there is the local bank from whom the home buyer gets the money to purchase the home. But behind the local bank is a complicated web of other players. (1) The Federal Reserve System that regulates the banks across the country and can take actions that affect interest rates and the money supply. (2) The Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac). These are...
two government-created, but privately owned, profit-making enterprises that buy mortgages from banks. By selling these mortgages, banks get money from a 30-year mortgage without having to wait 30 years for monthly payments from home buyers to pay off their debts. With the proceeds from these sales to Fannie Mae aor Freddie Mac, or to other financial institutions, the banks then have money to lend again to create more mortgages from which to profit. (p. 3)
(3) The U.S. Department of Housing and Urban Development (HUD), which has authority over Fannie Mae and Freddie Mac. (4) Wall Street firms which "buy mortgages, bundle them together and issue stocks and bonds based on the value of those mortgages."
Wall Street firms have sold these bundles to investors across the country and around the world. Although a California home buyer might borrow the money from a local bank to buy a house, the ultimate source of that money might be in New York or London or Tokyo. (p. 4)
With such a wide range of players with very different interests and incentives it becomes a somewhat complex process to follow how the housing market soared to such heights only to plummet to the depths we have seen over the course of the last 18 months or so. But Sowell does an excellent job of untangling the web of responsibility. And not surprisingly, the chief culprits are not the lending agencies, which politicians love to blame, but the politicians themselves who ignore sound economic principles.

Comments

Post a Comment

Popular posts from this blog

Why did Jesus say, "Don't Tell"?

By -
Why did Jesus tell the people he healed not to tell anyone? This is a curious thing, isn’t it? Especially in light of the fact that Jesus has commissioned us to make him known. We find that on several occasions during his earthly ministry that Jesus told the people whom he healed not to let anyone know about it. This was not always the case, however. For instance, when Jesus delivered the Gerasene demoniac from the power of Satan, and the man “begged that he might be with him… Jesus sent him away, saying, ‘Return to your home, and declare how much God has done for you’” (Lk. 8:38-39). So here’s one time, at least, when Jesus told a man to tell everyone. But on most other occasions he told people not to tell. In Matthew 9 we read about two blind men whom Jesus healed. It says, And their eyes were opened. And Jesus sternly warned them, “See that no one knows about it” (Matt 9:30). In the first chapter of Mark we read of a leper who was healed; and it says, Jesus sternly charged h
Read more

The New Testament's most prolific authors

By -
Image
Have you ever wondered who the most prolific authors of the New Testament are? Well, wonder no more because here's the skinny: the top three by far are Luke, Paul, and John. Some people will perhaps be surprised to learn that Paul doesn’t stand at the head of the list. The claim is often made that he wrote most of the New Testament. Not so. To be sure, he wrote the most books , but Luke wrote the most words, although their totals are very close to each other. Together, the two men wrote just over half of the New Testament.  Of the 138,020 Greek words in the New Testament, Luke wrote 27.5 percent (37,932). Paul wrote 23.5 percent (32,408). If we take Hebrews to have been written by Paul—the traditional view, though opposed by the consensus of modern biblical scholarship—then the numbers are almost identical. The total number of words written by Paul rises to 37,361 (or 27.1 percent of the total).   For a break down of the numbers, see the two charts below. Click to enlarg
Read more

When your brother has something against you

By -
What does Jesus mean when he says in Matthew 5:23-24, “If you are offering your gift at the altar and there remember that your brother has something against you, leave your gift there before the altar and go. First be reconciled to your brother, and then come and offer your gift”? He’s referring to bringing a sacrifice or an offering to the temple to present as a gift to God as an act of worship. And he says that if while you are doing this you remember that someone has something against you, you must first go and make it right, or God will not find the act of worship acceptable. Now, I suppose the question largely has to do with what Jesus means when he speaks of someone “having something against you”. We should be very clear about this. He doesn’t mean that your worship is unacceptable to God just because your neighbor is upset with you, regardless of why he is upset. He means that your neighbor has a legitimate grievance against you because you have sinned against him. You h
Read more