Did government agencies create the housing bubble?
When you take a closer look at the economics behind the housing bubble in America, you find a perfect argument for pro-Libertarian policies. Let’s face it. Federal regulations and government interventions in the marketplace failed us all. Libertarians would never have created Fannie Mae and Freddie Mac . . . nor would we have agreed to the federal bailouts related to the worst real estate crash since the Great Depression.
The warnings signs of property valuations reaching unsustainable levels were abundant, yet the “greed and corruption” was allowed to continue.
Countrywide Financial (the largest mortgage lender in the U.S.) had warned that the “refinancing boom” was simply allowing homeowners to reduce their monthly payments while withdrawing equity from their homes. Other mortgage bankers followed suit and repeatedly expressed their concern over an inevitable crash that would cause a substantial devaluation of home prices.
To make matters worse, federal regulators chose to ignore the fact that sub-prime brokers were writing thousands of loans per month for homeowners who would be unable to pay once their low-introductory rates reverted to regular interest rates.
Who saved Fannie Mae and Freddie Mac?
Our government allocated over $900 billion in federal bailouts in 2008 with over half going to government-run agencies like Fannie Mae, Freddie Mac and the FHA (Federal Housing Administration). Since the United States Constitution clearly limits spending without Congressional approval, under Libertarian policy-making the U.S. Treasury would have never been granted this power. Many of the agencies involved in this catastrophe would have never been funded with taxpayer dollars.
More importantly . . . homeowners who still have good credit ratings would not be stuck with mortgages that now exceed the current value of their home.
Hardworking Americans did not cause the housing bubble to burst. Our nation’s problems were perpetuated by the inept decision making that existed at the highest levels of government. The power and influence that should rightfully be in the hands of the American public was misplaced. When drafting our Constitution, the founding fathers of our nation never intended for the federal government to run our lives or businesses. Quite the opposite.