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Otter Mii-kun
September 26th, 2008, 11:50 AM
As early as 2002, one Congressman knew ahead the government, in alliance with the Federal Reserve, was inflating another investment bubble after the crash of the dot-com stocks...

...housing!

The legislation in the speech was an attempt to stop the bubble before it got out of control. Of course, it never passed... and now look where we are today!

~Otter Mii-kun


From http://www.house.gov/paul/congrec/congrec2002/cr071602.htm
Congressman Ron Paul
U.S. House of Representatives
July 16, 2002

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). These entities are the Federal National Mortgage Association (Fannie), the Federal Home Loan Mortgage Corporation (Freddie), and the National Home Loan Bank Board (HLBB). According to the Congressional Budget Office, the housing-related GSEs received $13.6 billion worth of indirect federal subsidies in fiscal year 2000 alone.

One of the major government privileges granted these GSEs is a line of credit to the United States Treasury. According to some estimates, the line of credit may be worth over $2 billion. This explicit promise by the Treasury to bail out these GSEs in times of economic difficulty helps them attract investors who are willing to settle for lower yields than they would demand in the absence of the subsidy. Thus, the line of credit distorts the allocation of capital. More importantly, the line of credit is a promise on behalf of the government to engage in a massive unconstitutional and immoral income transfer from working Americans to holders of GSE debt.

The Free Housing Market Enhancement Act also repeals the explicit grant of legal authority given to the Federal Reserve to purchase the debt of housing-related GSEs. GSEs are the only institutions besides the United States Treasury granted explicit statutory authority to monetize their debt through the Federal Reserve. This provision gives the GSEs a source of liquidity unavailable to their competitors.

Ironically, by transferring the risk of a widespread mortgage default, the government increases the likelihood of a painful crash in the housing market. This is because the special privileges of Fannie, Freddie, and HLBB have distorted the housing market by allowing them to attract capital they could not attract under pure market conditions. As a result, capital is diverted from its most productive use into housing. This reduces the efficacy of the entire market and thus reduces the standard of living of all Americans.

However, despite the long-term damage to the economy inflicted by the government’s interference in the housing market, the government’s policies of diverting capital to other uses creates a short-term boom in housing. Like all artificially-created bubbles, the boom in housing prices cannot last forever. When housing prices fall, homeowners will experience difficulty as their equity is wiped out. Furthermore, the holders of the mortgage debt will also have a loss. These losses will be greater than they would have otherwise been had government policy not actively encouraged over-investment in housing.

Perhaps the Federal Reserve can stave off the day of reckoning by purchasing GSE debt and pumping liquidity into the housing market, but this cannot hold off the inevitable drop in the housing market forever. In fact, 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.

No less an authority than Federal Reserve Chairman Alan Greenspan has expressed concern that government subsidies provided to the GSEs make investors underestimate the risk of investing in Fannie Mae and Freddie Mac.

Mr. Speaker, it is time for Congress to act to remove taxpayer support from the housing GSEs before the bubble bursts and taxpayers are once again forced to bail out investors misled by foolish government interference in the market. I therefore hope my colleagues will stand up for American taxpayers and investors by cosponsoring the Free Housing Market Enhancement Act.

Netto Azure
September 26th, 2008, 04:06 PM
As early as 2002, one Congressman knew ahead the government, in alliance with the Federal Reserve, was inflating another investment bubble after the crash of the dot-com stocks...

...housing!

The legislation in the speech was an attempt to stop the bubble before it got out of control. Of course, it never passed... and now look where we are today!

~Otter Mii-kun


From http://www.house.gov/paul/congrec/congrec2002/cr071602.htm

That's sad, see how Congressmen in Congress don't even get heard...(I know Ron Paul is Popular) But hey at least people answered our call to action in stopping that messed up 700 Billion bailout...

Red1530
September 26th, 2008, 05:50 PM
Don't forget about the Community Reinvestment Act and the problems it caused (http://article.nationalreview.com/?q=Mzk3MzFiYWY3NjUyNzUyNzA4MzYzNTk2ZDVhMDFiMWE=) in the sub-prime mess.

Keitaro
September 27th, 2008, 08:11 AM
Great topic; glad I'm not the only one here who is awake.

What is sad about Ron Paul being ignored by so many is that he's known about this economic threat for his entire political career. I found an interview today with him in '88 talking about problems people face todaye economic wise and other in this short interview... Link (http://www.youtube.com/watch?v=bdClmbCIqmo)

Just remember that the American public nation debt is over 9 trillion dollars today and will increase under a McCain/Obama administration. As for the TOTAL national debt including household, business, financial and government sectors today, is well... over 53 trillion dollars. Scary times ahead if this is not dealt with soon.