How much of our Free Capitalist Society is being lost in the current financial crisis?
It is no wonder that we don’t have Socialized Medicine, we already spent the money on Socialized Housing. The roots of this crisis are in pressure from congressmen to make housing loans available to those who do not qualify for normal loans. This is the basis for the growth of Fannie Mae and Freddie Mac. Yes, the American dream. But what is the dream going to cost us now that the financial structure has failed? So far about $900 Billion, which is the amount the Fed had in the bank (more or less). It is likely to cost taxpayers about $3 Trillion before it is all said and done.
The whole point is the Government now owns and operates Fannie and Freddie and will soon own and underwrite the entire worthless portfolio of sub-prime mortgages to provide continuing house loans for those who cannot qualify for them. I am not for putting people out of their homes but I am also not for putting people in homes who should not be there. There are other alternatives.
What I would like to be able to calculate is the value of the future impact of such a socialist program. I would contend that allowing the financial firms to collapse in a free market would actually put the assets back to work more quickly and safely than a slow federal process and at much lower cost. This now limits the ability of those who can invest at reduced price, and would, to do so.
Imagine you have a herd of cattle and the government comes by and says your herd could have a disease and they want to put a fence around them and quarantine the whole herd. In the meantime they tell everyone that beef is tainted and the price begins to fall. While you are locked up and cannot sell into the market the demand for beef continues to fall. Eventually the market bottoms and it is determined that your cattle are not sick, which you knew all along. Your herd is released back to you and now they cost more to feed than you can ever get back in the market. Now your only hope is that the Fed will purchase your herd or compensate you for the downturn. This will be at a discount and a loss to you. It could now take several business cycles for prices to return to a profitable level.
Should the Government be doing this with housing? I guess they have. In this case the rancher loses the beef and those who do not work for it will be eating well.