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Was the Housing Crash Avoidable, and Is It Over?

Oct 09, 12 Was the Housing Crash Avoidable, and Is It Over?

Invitations to the After Party

I was recently reading the 1946 economics text, Economics in One Lesson, by renowned 20th century economist Henry Hazlitt, when I came across this gem:

“The advocates of government-guaranteed mortgages also forget that what is being lent is ultimately real capital, which is limited in supply, and that they are helping identified B at the expense of some unidentified A. Government-guaranteed home mortgages, especially when a negligible down payment or no down payment whatever is required, inevitably mean more bad loans than otherwise. They force the general taxpayer to subsidize the bad risks and to defray the losses. They encourage people to “buy” houses that they cannot really afford. They tend eventually to bring about an oversupply of houses as compared with other things. They temporarily overstimulate building, raise the cost of building for everybody (including the buyers of the homes with the guaranteed mortgages), and may mislead the building industry into an eventually costly over-expansion. In brief, in the long run they do not increase overall national production but encourage malinvestment.”

It was forebearers like Hazlitt that provided the insight that aided Ron Paul in predicting the crisis a full 6 years ahead of time in September of 2001:

What the public should understand, is that the necessary correction to real estate prices has not hit, because price is largely predicated on interest rates.  Because interest rates have remained the same or dropped in this time, prices have remained artificially high, because borrowers can afford to pay more in principle for their loans.  When will the correction finally hit?  I’d highly recommend checking out Peter Schiff’s “The Real Crash”.

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