Saturday, March 21, 2009

The Roots of "Economic Challenge" in One Picture


Paul Kedrosky links to Mary Meeker's (Morgan Stanley) "Economy + Internet Trends" slides (147 total). I thought Slides #5 and #6 above were especially interesting.

Related: Today's WSJ article on Nobel economist Gary Becker:

1. When asked about the sources of the mania in housing prices, the first culprit Gary Becker names is the Fed. Low interest rates, he says, were "partly, maybe mainly, due to the Fed's policy of keeping its interest rates very low during 2002-2004 (see top slide above). When you have low interest rates, any long-lived assets tend to go up in price because they are based upon returns accruing over many years. When interest rates are low you don't discount these returns very much and you get high asset prices."

2. On top of that, Mr. Becker says, there were government policies aimed at "extending the scope of homeownership in the United States to low-credit, low-income families." This was done through "the Community Reinvestment Act in the '70s and then Fannie Mae and Freddie Mac later on" and it put many unqualified borrowers into the mix (see bottom slide above).

5 Comments:

At 3/21/2009 11:58 AM, Blogger bix1951 said...

The culprits were identified long long ago
but to my knowledge they have yet to accept any blame.
I have heard it said that we are all to blame.
But common sense tells me that is an absurd assertion.
Only in a mysterious transcendental way are we "all" to blame.

 
At 3/21/2009 5:05 PM, Anonymous Anonymous said...

Do Obama and the Democrats have a deliberate strategy to force the country into crisis and bankruptcy?

 
At 3/21/2009 7:17 PM, Blogger QT said...

Anon.,

One would have to assume competence for such a theory to hold...and the evidence to support such a conjecture...?

 
At 3/22/2009 10:53 AM, Anonymous Anonymous said...

Alas, I can offer no evidence of competence. In fact, if these first few months are any indication, the bottom rung of the presidential rankings is secure.

 
At 3/22/2009 2:01 PM, Anonymous Anonymous said...

WASHINGTON – The top Republican on the Senate Budget Committee says the Obama administration is on the right course to save the nation's financial system.

But Sen. Judd Gregg of New Hampshire also says President Barack Obama's massive budget proposal will bankrupt the country.

Gregg says he has no regrets in withdrawing his nomination to become commerce secretary. He pulled out after deciding he could not fully back the administration's economic policies.

The senator said Obama's spending plan in the midst of a prolonged recession would leave the next generation with a country too expensive to live in.

Link

 

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