|
by Michael "Mish" Schedlock
Congress
passed legislation to create GSEs to foster affordable housing. Now the
definition of "affordable" is over $700,000, and calls to reduce
the role of the Fannie Mae are now calls to increase the role of Fannie Mae
in the wake of the housing crisis. There were 300 some programs to create
affordable housing and every program made the situation worse. All those
programs really amounted to was handouts to the building industry and banks.
And
if Congress would stop wasting money on needless programs the dollar would
stop sinking. Of course the government is wasting trillions of dollars trying
to be the world's policeman, a role we can no longer afford.
The
SEC in its infinitely poor wisdom, decided to give government sponsorship to
Moody's, Fitch, and the S&P and this led to extremely risky garbage being
rated AAA. I talked about this problem in Time To Break Up The Credit Rating
Cartel.
But
the Fed deserves the brunt of the blame for micro-managing interest rates
like some central planners from the Soviet Union. The Fed does not know how
to set the correct price for money (interest rates) any more than it knows
how to set the correct price for orange juice. Only free market forces can
properly set prices so that economic distortions do not occur.
Unfortunately,
every problem Greenspan faced was an excuse to cut interest rates. Even
non-problems like the silly Y2K (year 2000) scare was an excuse to cut rates.
When
the dotcom bubble collapsed, the Fed slashed interest rates to 1% to get the
economy moving again. The housing bubble was the result. Greenspan added more
fuel to the fire along the way by openly praising ARMs and derivatives.
Greenspan
May 5th 2005: "Perhaps the clearest evidence of the perceived benefits
that derivatives have provided is their continued spectacular growth."
I
compared Greenspan to Buffett in Who's Holding The Bag?
Buffett
in stark contrast to Greenspan called the explosive use of derivatives an
"investment time bomb".
It's
perfectly clear now who was right. For those who have not pieced the story
together properly, it was fear of a dominoes style chain reaction collapse of
Credit Default Swaps starting with Bear Stearns that caused Bernanke to force
a shotgun wedding between Bear Stearns and JP Morgan.
So
what does the Treasury Department propose? The Orwellian answer of course is
to give the Fed still more power to wreak havoc.
http://globaleconomicanalysis.blogspot.com/
Fake Ben
Bernanke
FakeBen.com
FakeBen is a blog
to monitor the Fed and its actions and encourage community participation. At
FakeBen, we believe that the Fed policy of the last two decades has created a
credit bubble as large as that created in the 1920s. This bubble will lead to
either inflation, a recession, or both.
| 
