“The problem is that, in the early stages, government economic planning and affirmative action lending look appealing. More homes are built and more people purchase homes that they otherwise would not have qualified for. Home prices soar and borrowing against the inflated prices is something the government and regulations encourage…

…The homeowners live beyond their means on borrowed money. None of this would have occurred in a free market with sound money.”, Ron Paul, “End the Fed”, 2009

“Many, including Greenspan, now argue that the major flaw in the system was the lack of adequate legislation to control “unbridled capitalism.” If only we could have monitored the “derivatives” market, the bust could have been prevented, they argue. Not so! Bureaucratic regulations cannot compensate for government programs and a Federal Reserve policy of inflationism that guarantees gross imbalances in the economy and provides a permanent safety net so that major losses are not felt by the perpetrators.”, Ron Paul, “End the Fed”, 2009

Part 2: Other Key Excerpts from Chapter 9: The Current Mess:

“The Congress, the bureaucrats, and the courts took an unsound monetary system destined to wreak havoc on our economy and made it much worse. Various programs, many started in the 1930s, encouraged and sometimes forced lenders to make subprime loans.”

“The market, though not perfect, minimizes unsound lending practices. Both borrowers and lenders are much more cautious when the risk is borne by the two parties involved rather than protected by the proverbial safety net.”

“In a structured social welfare…interventionist state, no one becomes solely responsible for his or her own actions….If individuals aren’t responsible for their actions as the bubble forms, the responsibility falls on others and to a future generation. Taxpayers, eventually, must foot the bill.”

“All bailouts are dependent on the Fed to create new credit out of nothing, the very policy that caused the mess in the first place.”

“The Community Reinvestment Act of 1977, as well as the Equal Credit Opportunity Act of 1974, contributed in large measure to the excess in the subprime market by forcing lending agencies to specifically make loans they otherwise would have avoided.”

“The flawed concept of economic equality through force, a socialist notion, prompted legislation like the Community Reinvestment Act, which was really a way of institutionalizing affirmative action in the financial sector, since the borrowers who temporarily benefited (or were exploited) were disproportionately minorities. The very most one might concede is that affirmative action in making loans is based on the good intentions of many who support the programs. But as with all government programs, unintended consequences and new problems result.”

“The problem is that, in the early stages, government economic planning and affirmative action lending look appealing. More homes are built and more people purchase homes that they otherwise would not have qualified for. Home prices soar and borrowing against the inflated prices is something the government and regulations encourage.”

“The homeowners live beyond their means on borrowed money. None of this would have occurred in a free market with sound money. But the climactic end to this illusion of wealth and home ownership for everyone is logically predicted. The poor are being foreclosed upon. Many will be out on the street. More inflation and government handouts won’t solve the problem.”

“The poor were deceived into believing government force could get them a home even if they hadn’t saved a penny, and it didn’t work. But many thrived as the housing bubble developed. Fannie Mae and Freddie Mac executives did well and “escaped” with millions.”

“Builders made huge profits constructing houses and stashing away profits, enjoying the steady increase in prices. Sales prices frequently exceeded the anticipated price when construction started. Mortgage brokers, banks, insurance companies, “flippers,” landowners, and developers all enjoyed the ride, and many were able to protect themselves. The poor were not so lucky.”

“With the collapse of the imbalances created by the dream of easy wealth, the poor, deceived into believing politicians could deliver the moon, are now unemployed and without a home.”

“The last thing that is likely to save them is a public works program. If the government was completely wrong in allocating massively excessive capital into housing, precipitating the greatest financial bubble in human history, it is hardly capable of making the correct decision as to where capital should be directed in the next decade.”

“There are many programs similar to the CRA that add fuel to the fire of waste, fraud, debt, and malinvestment. Significantly contributing to the moral hazard, that is the bad judgment, have been the FDIC, SEC, Fannie Mae and Freddie Mac, HUD, rules and regulations, court orders, the IRS, and a credit card mentality of no limits.”

“GSEs (government sponsored enterprises) such as Fannie Mae and Freddie Mac sent a message to investors and lenders that the Treasury and the Fed would always be there if any problems arose.”

“Foreign investors were definitely more inclined to invest in securitized mortgages knowing that Fannie Mae and Freddie Mac had an open line of credit to the U.S. Treasury. Interest rates were already below market due to the Fed policy, but the line of credit lowered rates even more, encouraging more risk taking. (Government) Subsidized mortgage insurance produced great incentive for making subprime loans that would have otherwise been rejected. And if there was no Fed, the risk takers would have thought much more about the consequences of their actions.”

“Sarbanes-Oxley, a regulatory consequence of the Enron and Long-Term Capital Management failures that imposed massive new costs on American business, did nothing to prevent today’s crisis. Our problem today was not caused by lack of business and banking regulation.”

“Many, including Greenspan, now argue that the major flaw in the system was the lack of adequate legislation to control “unbridled capitalism.” If only we could have monitored the “derivatives” market, the bust could have been prevented, they argue. Not so! Bureaucratic regulations cannot compensate for government programs and a Federal Reserve policy of inflationism that guarantees gross imbalances in the economy and provides a permanent safety net so that major losses are not felt by the perpetrators.”

“The Fed, short of being abolished, should have been prohibited from creating money and credit out of thin air and exerting monopoly control of the system with authority to set interest rates. These powers, unregulated, have nothing to do with freedom and sound economic policy. The Treasury should be regulated much more carefully.”

“As part of the ignored President’s Working Group on Financial Markets (Plunge Protection Team), the Treasury, along with the Fed, SEC, and CFTC, will continue to rescue the market in any way possible. Unfortunately, it’s more likely that its powers will be used to bail out friends at the expense of the rest of us. Wall Street won’t object. It wants protections from downturns and cares little about truly free markets.”

“The post-meltdown bailout economy has been one of the most frightening sights I’ve seen in all my years in Washington.”

“The Fed has committed trillions of dollars……The (government) debt buildup crowds out private-sector lending. It perpetuates bad views concerning home ownership. It subsidizes the past while ignoring the future.”

“The U.S. debt obligations are unfathomable, approaching $12 trillion. You might say the entire federal government is one giant toxic asset at the moment. It certainly has no business telling the private sector how to run its affairs.”

“And yet someone is getting money. Mostly it is powerful players in the market, institutions regarded as essential to national well-being, such as Goldman Sachs and AIG insurance.”

Posted on April 22, 2015, in Postings. Bookmark the permalink. Leave a comment.

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