The Housing Boom and Bust

The Housing Boom and Bust

by Thomas Sowell, Economist Extraordinaire

A straightforward case study that should be required reading for American voters, political science students, and anyone who supports government interventions into business “for the good of society.” In The Housing Boom and Bust, Sowell analyzes the housing boom which peaked in 2005, and the collapse which followed shortly thereafter.

Here’s the chain of events, as he presents them:

(1)  Beginning in the 1970’s land use restrictions were enacted in certain areas, for example coastal California, Arizona, and a few others. This reduced the amount of developable land which led to higher housing costs in those areas.

(2) Citing “skyrocketing” housing costs and the noble goal of affordable housing for all, politicians began pressuring, bullying, and at times forcing banks to lower lending standards so more buyers could obtain a mortgage. At the same time, HUD began charging banks with discrimination for denying minority applicants, further squeezing high risk loans out of mortgage lenders.

(3) Economists who warned of the risk of a future collapse were ignored, and regulators who uncovered “irregularities” were silenced.

(4) Borrowers began lagging in payments, home values which had been falsely inflated began to decline, and by 2006, the house of cards was beginning to implode.

(5) Politicians, some of whom personally enacted the policies that created the boom and bust, blamed Wall Street, banks, political opponents, anyone and anything except the actual cause which was government intervention into banking.

(6) In October of 2008, the federal government began spending taxpayer dollars and in exorbitant amounts and further intervening into the business realm to “save” the economy.

The case study demonstrates how political posturing, policies, and legislation, whether well-meaning or not, are the biggest cause of the mess our economy is in now. Sowell evenly criticizes Republicans and Democrats, so you won’t find a single partisan argument here, just a smart man hammering facts and drawing lines from causes to effects. It’s a book for citizens.

Whether you fear government takeover, or believe in the power of government to solve problems, check him out. Then come back her and tell me about it.

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