All this regulation talk is interesting. Would have chimed in earlier but I have been travelling.
I’m all for regulation that focuses on eliminating criminal activity and punishing those who breach a contract, defraud others, or violate property rights. This kind of regulation is needed in the world.
However, many – like brian – get this confused with regulation that is designed merely to force a market in a desired direction, with no regard for personal rights. This kind of regulation creates disasters and is the result of control freaks who don’t like it when a free market behaves a certain way. Just because a market is doing wierd things doesn’t mean regulation is needed. Just “let it be” and if the market doesn’t appeal to you – stay away from it instead of calling the government to “help.”
In other words – the housing market really isn’t a a public entity, there for the common good. It is a private matter, and those partaking in it are doing so voluntarily and the gov should stay the hell out, even if it becomes hosed up.
Just because the housing market isn’t acting the way you want it to doesn’t mean you have the right to force others to act in a way you want.
Problem is – the gov has made it a public matter by bailing out the banks with our money. Thus, we have some right to suggest regulations on the banks, since we are backing them. However, I would rather see the banks unregulated and not bailed out instead of regulated and bailed out.
Forcing people to put 30% down is exactly this kind of “regulation to an outcome.” No private individual or government entity has any clue what the “correct” amount of a down payment is. Picking the wrong number can kill the market by stagnation or bubble. Greenspan tried to pick the right number and failed, for example.
Secondly, does the gov really have any right to dictate how two private parties interact? I think not.
If I ask sdr for a loan on a house and I only want to put down %3 and he says that’s OK, who on the planet has the right to restrict us from doing that deal ? Nobody, that’s who.
If you are going to regulate a market to a particular outcome, you will be violating people’s personal freedoms all over the place. To me, that just isn’t acceptable. So, it isn’t about whether or not the free market can do a better job than regulation. It is about keeping the gov. out of people’s personal decisions. It is about letting people make their own decisions in private matters and keeping private markets private.
This isn’t to say that certain regulations prior to 2004 wouldn’t have helped prevent the rise and fall of housing. Certrainly, criminal behavior was allowed by the gov without punishment. Most notably, the ratings agencies were the truly fraudulent parties that made this mess possible.
Also, I have to consider Greenspan’s actions of keeping rates low as a form of “regulation to an outcome” that failed us miserably.
Sadly, the most effective regulation has been repealed. That is the law that says if you are a bank and you loan money to people who can’t repay it, then you go out of business. If that were in effect, we would have this problem solved by now.
