{"id":12058,"date":"2010-05-26T08:52:18","date_gmt":"2010-05-26T15:52:18","guid":{"rendered":"http:\/\/www.bloodhoundrealty.com\/BloodhoundBlog\/?p=12058"},"modified":"2010-05-26T08:54:20","modified_gmt":"2010-05-26T15:54:20","slug":"what-caused-the-housing-crisis-perverse-government-incentives","status":"publish","type":"post","link":"https:\/\/www.bloodhoundrealty.com\/BloodhoundBlog\/12058\/what-caused-the-housing-crisis-perverse-government-incentives\/","title":{"rendered":"What caused the housing crisis? Perverse government incentives."},"content":{"rendered":"

Form an academic paper by George Mason University Economics Professor Russell Roberts:<\/a><\/p>\n

Beginning in the mid-1990s, home prices in many American cities began a decade-long climb that proved to be an irresistible opportunity for investors. Along the way, a lot of people made a great deal of money. But by the end of the first decade of the twenty- first century, too many of these investments turned out to be much riskier than many people had thought. Homeowners lost their houses, financial institutions imploded, and the entire financial system was in turmoil.<\/p>\n

How did this happen? Whose fault was it? Some blame capitalism for being inherently unstable. Some blame Wall Street for its greed, hubris, and stupidity. But greed, hubris, and stupidity are always with us. What changed in recent years that created such a destructive set of decisions that culminated in the collapse of the housing market and the financial system?<\/p>\n

In this paper, I argue that public-policy decisions have perverted the incentives that naturally create stability in financial markets and the market for housing. Over the last three decades, government policy has coddled creditors, reducing the risk they face from financing bad investments. Not surprisingly, this encouraged risky investments financed by borrowed money. The increasing use of debt mixed with housing policy, monetary policy, and tax policy crippled the housing market and the financial sector. Wall Street is not blameless in this debacle. It lobbied for the policy decisions that created the mess.<\/p>\n

In the United States we like to believe we are a capitalist society based on individual responsibility. But we are what we do. Not what we say we are. Not what we wish to be. But what we do. And what we do in the United States is make it easy to gamble with other people’s money—particularly borrowed money—by making sure that almost everybody who makes bad loans gets his money back anyway. The financial crisis of 2008 was a natural result of these perverse incentives. We must return to the natural incentives of profit and loss if we want to prevent future crises.<\/p><\/blockquote>\n","protected":false},"excerpt":{"rendered":"

Form an academic paper by George Mason University Economics Professor Russell Roberts: Beginning in the mid-1990s, home prices in many American cities began a decade-long climb that proved to be an irresistible opportunity for investors. Along the way, a lot of people made a great deal of money. But by the end of the first […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_crdt_document":"","jetpack_post_was_ever_published":false,"_jetpack_newsletter_access":"","_jetpack_dont_email_post_to_subs":false,"_jetpack_newsletter_tier_id":0,"_jetpack_memberships_contains_paywalled_content":false,"_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[251,29,26,5],"tags":[],"class_list":{"0":"post-12058","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"hentry","6":"category-big-mother","7":"category-group-therapy","8":"category-lending","9":"category-real-estate","11":"no-featured-image"},"jetpack_featured_media_url":"","jetpack_sharing_enabled":true,"jetpack-related-posts":[{"id":12930,"url":"https:\/\/www.bloodhoundrealty.com\/BloodhoundBlog\/12930\/the-basic-laws-of-stupidity-no-explanation-needed\/","url_meta":{"origin":12058,"position":0},"title":"The Basic Laws of Stupidity – No Explanation Needed","author":"Don Reedy, San Diego, CA","date":"August 13, 2010","format":false,"excerpt":"Greg often talks about self determination and splendor.\u00a0 There is a raw courage that comes with saying that a bandit can put a gun in your face and demand what they want, but ultimately that bandit cannot take from you what you will not give him. 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This is not rare, but it should be among people who think degrees matter. Plus, the answer is right there from the Anglicized Latin: A-, Ad- verbs are accusative in English; E-,\u2026","rel":"","context":"In "Group Therapy"","block_context":{"text":"Group Therapy","link":"https:\/\/www.bloodhoundrealty.com\/BloodhoundBlog\/category\/group-therapy\/"},"img":{"alt_text":"Ya think it's easy?","src":"https:\/\/i0.wp.com\/www.bloodhoundrealty.com\/BloodhoundBlog\/wp-content\/uploads\/2020\/08\/BHBNewTopImage-300x225.jpg?resize=350%2C200","width":350,"height":200},"classes":[]},{"id":18606,"url":"https:\/\/www.bloodhoundrealty.com\/BloodhoundBlog\/18606\/overnight-news-if-artificial-intelligence-had-any-brains-it-wouldnt-let-zillow-ceo-rich-barton-throw-it-under-the-bus-for-his-absurd-deliberately-uninformed-inve\/","url_meta":{"origin":12058,"position":3},"title":"Overnight News: If \u201cArtificial Intelligence\u201d had any brains, it wouldn\u2019t let Zillow CEO Rich Barton throw it under the bus for his absurd, deliberately-uninformed \u201cinvestment\u201d assumptions.","author":"Greg Swann","date":"November 18, 2021","format":false,"excerpt":"Here are three facts about intelligence: Your dog is not intelligent, nor is any entity lacking a properly-functioning thinking brain. \"Artificial Intelligence\" is quite a bit less intelligent than your dog \u2013 and it is never capable of even the most basic forms of awareness, understood biologically. 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