The Fall of Logic: The Deceit of Conventional Financial Wisdom by B. Chase Chandler

Author:B. Chase Chandler [Chandler, B. Chase]
Language: eng
Format: epub, azw3, mobi, pdf
Publisher: EIII Publishing Company
Published: 2014-12-20T08:00:00+00:00

It seems we have so quickly forgotten the issues that brought along the great crash of 2008. Just recently the government announced an operation to begin loaning money to people with lower credit scores. When are we going to learn? Affordable housing initiatives as we know them today were originally started by President. Jimmy Carter. They kind of sat there for a number of years after Carter’s departure, until President Clinton picked them back up. And then President George W. Bush famously said in 2003[xi], “The rate of homeownership amongst minorities is below 50 percent. And that's not right, and this country needs to do something about it. We need to close the minority homeownership gap in America so more citizens get the satisfaction and mobility that comes from owning your own home, from owning a piece of the future of America…we need to make the home buying process more affordable. Some of the biggest upfront costs in a home purchase are the closing costs. Sometimes they catch you by surprise. [Laughter] Many homebuyers do not have the time to shop around looking for a better deal on closing costs. You're kind of stuck with what you're presented with. And so they end up paying more than they should. So we've proposed new rules to make it easier for buyers to shop around and to compare prices on closing costs, so they can get the best deal and the best service possible…The dream of homeownership should be attainable for every hard-working American. That's what we want…”

What President Bush was saying is exactly what most of the other presidents had said since Carter. He just set it more blatantly. So this is what they did. They thought it wise to push people into homes that they really couldn’t afford. The banking sector was more than willing to accommodate these government initiatives. But, alas, this is nothing but the manipulation of supply and demand. To create demand where demand should not be is to play god. The housing markets kept going up and up and up and no one ever thought it would end. We were artificially flooding the housing market with new buyers who should have never been buyers. If the private markets had controlled the buying process exclusively they would have been substantially more conservative in their lending practices. But when the government got involved it created the illusion of a backstop in case something bad happened. And something bad did happen. In response to the great crash Congress in the Federal Reserve past unprecedented legislation to flood the markets with currency and to keep interest rates low. Keeping interest rates low would, as we’ve discussed, give the illusion of cheap money. But it’s not really cheap money. Just like the housing crash this short-term illusion of low interest rates will end in destruction.

Many businesses are building and expanding because they have received access to this cheap money. They’ve been presented the false idea that now is a good time to borrow.

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