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Why does the government need to be involved in mortgage lending at all? Is there a specific market failure inherent in it people can point to that calls for gov

Why does the government need to be involved in mortgage lending at all? Is there a specific market failure inherent in it people can point to that calls for government intervention to overcome (akin to the public good failure for e.g. roads)?

talmand 10y ago
One specific market failure people can point at is government involvement.
jessaustin 10y ago
When these institutions were first created no one imagined the harm they would inevitably cause. Now that they exist they can't be killed, because they help some people. Like a lot of things, really.
- formula1 10y ago
  Thats not entirely true. England has had a number of economic scandals before the US recieved their independence. There is also certainly a president of "too big to fail" to the point that the king was invested [0]. [0] https://en.m.wikipedia.org/wiki/South_Sea_Company https://en.m.wikipedia.org/wiki/South_Sea_Company
  - afarrell 10y ago
    For an entertaining summary of this, I recommend the youtube series Extra History: https://www.youtube.com/watch?v=k1kndKWJKB8 https://www.youtube.com/watch?v=k1kndKWJKB8
  - jessaustin 10y ago
    Haha I thought we were talking about Fannie Mae, not USA itself. Although, the latter might be a better comparison to the South Sea Company...
TheSpiceIsLife 10y ago
The government, acting as the collective will of the people, believes, due to recent experience, that a housing crash, and the concomitant cascade of mortgage defaults, is something worth making an effort to avoid? I think that's how the story is supposed to go. I guess the flip side is that quote by that fellow I read somewhere that went something like: democracy cannot last as a permanent form of government, it can last only until people realise they can vote themselves largess from the public purse. Let's wait and see what happens.
eli_gottlieb 10y ago
Homeownership was a major pillar of post-WW2 cultural stability among the middle class, so subsidizing it was considered a social good.
- internaut 10y ago
  Cringed while reading. We've got to stop transcribing intuitions into universal laws if we want to claim the sapiens in homo sapiens. Regardless of political stance, for any animal to require half its lifetime in effort to acquire a shelter, well that is retarded. And for some reason we consider ourselves more enlightened than our ancestors building functionally useless monoliths. At least the pyramids united the tribe or whatever.
  - formula1 10y ago
    I feel like I can relate to your position however I believe there is much more to this than simply "unevolved" - a hive mind (similar to that of bees or ants) likely considers death to be a reasonable loss to the point of canabalism being deemed reasonable. This is probably the closest to full centralization there is. - in gorillas there tends to be one male per multiple females and per area. There also tends to be a female pecking order where one stands dominant and weaker ones get scars. This is probably the closest to fully independent since each individual only gets what they take. We live in a world where money can be anywhere and we want to allow anyone to have the opportunity to get what they want (so long as it doesnt harm the collective good). What tends to happen is the money becomes centralized to trade centers or with rare resources like peaceful community or opportunity in entertainment. However, space is a scarce commodity in these locations because it attracts so many people. So isnt it fair to increase the prices? The people who are making the most money for the area should have the most convinient location. "unevolved" implies that there isnt rhyme or reason to this.
wahern 10y ago
People who have nothing to lose tend to make poor economic decisions and poor social decisions. That's why home ownership matters. It's a poor investment vehicle only if you assume people would invest savings from renting into appreciating assets, rather than burn it on consumables. They won't. So, yeah, government is involved because it's a collective action problem. Individuals and the market left to their own devices will reach a suboptimal equilibrium. Is home ownership the _only_ answer? No. The problem is fundamentally cultural. But in the U.S. especially, subsidizing home ownership seems to be the most viable mechanism we can, as a society, agree upon. Probably because of our emphasis on individualism. In a society that highly values individualism, people will be more incentivized to strive toward home ownership than other alternatives. We went them (us) to delay other, less economically efficient forms of gratification. In some Asian societies, for example, different cultural preferences make alternatives more viable. For example, they're more likely to emphasize investment in education. I'm pretty sure the phrase "book learning" isn't derogatory in most Asian societies, even for low-skilled laborers who feel disenfranchised and lack any intellectual ambition. (Not that those things are necessarily related--I strung them together for emphasis.) In any event, the point is to keep people invested in the economy in such as way that their individual choices tend toward more productive activities. It's a channeling function.

talmand 10y ago

One specific market failure people can point at is government involvement.

jessaustin 10y ago

When these institutions were first created no one imagined the harm they would inevitably cause. Now that they exist they can't be killed, because they help some people. Like a lot of things, really.

formula1 10y ago
Thats not entirely true. England has had a number of economic scandals before the US recieved their independence. There is also certainly a president of "too big to fail" to the point that the king was invested [0]. [0] https://en.m.wikipedia.org/wiki/South_Sea_Company https://en.m.wikipedia.org/wiki/South_Sea_Company
- afarrell 10y ago
  For an entertaining summary of this, I recommend the youtube series Extra History: https://www.youtube.com/watch?v=k1kndKWJKB8 https://www.youtube.com/watch?v=k1kndKWJKB8
- jessaustin 10y ago
  Haha I thought we were talking about Fannie Mae, not USA itself. Although, the latter might be a better comparison to the South Sea Company...

TheSpiceIsLife 10y ago

The government, acting as the collective will of the people, believes, due to recent experience, that a housing crash, and the concomitant cascade of mortgage defaults, is something worth making an effort to avoid? I think that's how the story is supposed to go. I guess the flip side is that quote by that fellow I read somewhere that went something like: democracy cannot last as a permanent form of government, it can last only until people realise they can vote themselves largess from the public purse. Let's wait and see what happens.

eli_gottlieb 10y ago

Homeownership was a major pillar of post-WW2 cultural stability among the middle class, so subsidizing it was considered a social good.

internaut 10y ago
Cringed while reading. We've got to stop transcribing intuitions into universal laws if we want to claim the sapiens in homo sapiens. Regardless of political stance, for any animal to require half its lifetime in effort to acquire a shelter, well that is retarded. And for some reason we consider ourselves more enlightened than our ancestors building functionally useless monoliths. At least the pyramids united the tribe or whatever.
- formula1 10y ago
  I feel like I can relate to your position however I believe there is much more to this than simply "unevolved" - a hive mind (similar to that of bees or ants) likely considers death to be a reasonable loss to the point of canabalism being deemed reasonable. This is probably the closest to full centralization there is. - in gorillas there tends to be one male per multiple females and per area. There also tends to be a female pecking order where one stands dominant and weaker ones get scars. This is probably the closest to fully independent since each individual only gets what they take. We live in a world where money can be anywhere and we want to allow anyone to have the opportunity to get what they want (so long as it doesnt harm the collective good). What tends to happen is the money becomes centralized to trade centers or with rare resources like peaceful community or opportunity in entertainment. However, space is a scarce commodity in these locations because it attracts so many people. So isnt it fair to increase the prices? The people who are making the most money for the area should have the most convinient location. "unevolved" implies that there isnt rhyme or reason to this.

wahern 10y ago

People who have nothing to lose tend to make poor economic decisions and poor social decisions. That's why home ownership matters. It's a poor investment vehicle only if you assume people would invest savings from renting into appreciating assets, rather than burn it on consumables. They won't. So, yeah, government is involved because it's a collective action problem. Individuals and the market left to their own devices will reach a suboptimal equilibrium. Is home ownership the _only_ answer? No. The problem is fundamentally cultural. But in the U.S. especially, subsidizing home ownership seems to be the most viable mechanism we can, as a society, agree upon. Probably because of our emphasis on individualism. In a society that highly values individualism, people will be more incentivized to strive toward home ownership than other alternatives. We went them (us) to delay other, less economically efficient forms of gratification. In some Asian societies, for example, different cultural preferences make alternatives more viable. For example, they're more likely to emphasize investment in education. I'm pretty sure the phrase "book learning" isn't derogatory in most Asian societies, even for low-skilled laborers who feel disenfranchised and lack any intellectual ambition. (Not that those things are necessarily related--I strung them together for emphasis.) In any event, the point is to keep people invested in the economy in such as way that their individual choices tend toward more productive activities. It's a channeling function.