The global economic crisis that started in the late 2008 is considered to be one of the worst ones in decades, perhaps the worst one since the Great Depression. It has started in the United States, but its ramifications have been felt globally, reminding us once again that we live in a very interconnected world. The source of the crisis seems to be rather obscure, and involves many hard to understand factors. Indeed, there is no single effect that can be blamed for the entire crisis, but one factor looms much larger than all the other ones, and that is the housing boom and bust. This, in a nutshell, is the basic premise behind Thomas Sowell's latest book. He describes and analyzes how the overregulated housing markets in a very few regions in the United States, coupled with the governmentally imposed quotas for the wider availability of housing loans, skewed the housing market and prevented the simple market mechanism from operating and correcting the ensuing market imbalances. Far from being caused by the lack of regulation of the banking sector, the crisis was brewing for years, decades even, and was caused exactly by the presence of too much regulation in one of the biggest parts of the overall economy. The bottom line is: the crisis was caused by the faulty politics, not the faulty economics. Not taking home this fundamental lesson has very dire consequences. The same people who lobbied and pushed for the legislation that has brought us to the current situation are the ones who are now leading the charge for its fixing. Predictably, the proposed solutions are along the lines of the policies that brought us to the current crisis. This is probably prolong the crisis and have unforeseen consequences in the years to come. Hopefully, before that comes to pass we will learn from the past mistakes and avoid making a whole host of new ones. The best first step in that direction is understanding what really happened with the economy in 2008. And for that, Thomas Sowell's book is an invaluable guide.
Economist and political commentator Thomas Sowell provides a readable explanation of the US housing market bubble and its aftermath. His point of view is not in question - it is decidedly on the right, as one might anticipate from a Hoover Institution scholar, so read it with awareness that other experts just as firmly believe opposing views. Sowell lambastes politicians who, he feels, pushed a disastrous policy that made home ownership available to most Americans, including those least able to pay. His style is not always felicitous, but it is accessible, and that is more than you can say for many economists. getAbstract thinks that anyone who wants to understand the housing market that contributed to the 2008-2009 economic crisis will find this illuminating.
I have read many books on the subject of the current financial crisis, and I have to say that there are many opinions. In this book, the author is trying to persuade readers that the main cause of the crisis is our government. While I agree with many of the points that he makes, I do not believe that the government is the only one to blame. It is like saying that credit card companies are responsible for a person's financial situation. What about the individual being responsible for his or her own actions?
The government made mistakes, no question about it. I am angry with them just like anyone else who reads this book. But banks, mortgage companies, and the general public should take responsibility, too. Those who could not afford big loans should never have taken them. Mortgage companies should never have pushed loans to people who did not have good enough credit.
For those who want to find out about our government's mistakes concerning the current financial crisis, read this book, but don't think that it is the only cause.
- Mariusz Skonieczny, author of Why Are We So Clueless about the Stock Market? Learn how to invest your money, how to pick stocks, and how to make money in the stock market
This is a bit overlong with repetition, which only serves to reinforce the view that it's fiat money politicians and their lack of strategic capabilities and foresight that got us here. Worse they have no concept of ricochets and unintended consequences through myopic short termism.
It's worth plugging away to the conclusion though, lucky for me I heard it as an audio book
A very clear and lucid account of the origins of the crisis. The book talks first about the over-regulation and mis-regulation by city and federal governments in the 1970s and 1980s, creating a shortage of house building land. This then triggered land price booms in a small number of desirable cities in the USA. House builders then passed these land price increases to house buyers, triggering highly localised house-price booms - which then attracted many investors looking for a quick buck. As new-build houses rose in price, gentrification kicked in and renovators started pricing locals out of formerly run-down neighbourhoods. The many multi-property investors who entered the game were sustained by a government which had encouraged a low-interest / easy-credit economy. These highly localised house-price booms were then cynically used to justify a national political crusade for "affordable housing" for minority groups. Very quickly the mortgage companies were forced by the U.S. government (under threat of legal action) into quotas which handed out millions of no-risk mortgages ("low incomes acceptable, no deposit needed, pay almost nothing for two years") to those least able to afford the eventual payments. These "toxic debts" were then bought up by the huge U.S. government-sponsored mortgage aggregators, which quickly repackaged them as 'mortgage-backed securities' which they could sell off to unsuspecting investors and banks around the world. And we all know what happened next. The problem was then made worse as governments dithered about which banks they should save, and which they should let go to the wall. This uncertainty meant that no-one in business knew who to trust for credit, leading to a spiralling credit crisis. A highly recommended book, and one which is accessible to the general reader. This title is not to be confused with "Housing Boom and Bust" by Peter King (a forthcoming academic anthology from Routledge, 2010), which is a different book.
The boom and bust in the US housing market has had enormous implications for the world economy as a whole so it is useful to have a grasp of what caused it, how we can avoid doing it again and how not to respond.
The bust is easy to explain- house prices rises vastly exceeded gains in income, population or productivity so could not be sustained. A bust was inevitable, explaining the boom is the tricky part.
Contrary to popular dogma the boom wasn't fueled by 'deregulation' or the free market but was brought into being by the government interventions- whether in restricting land use or coercing banks to drop lending standards.
I won't attempt to rehash the entire book but Sowell looks at the impact of all the main players- the banks, the federal government, Fannie & Freddie and the regulators and explains how they each interacted to cause this failure. Unsurprisingly politicians come outparticularly badly.
The book probably was rushed out by the publishers soon after the crisis came to a head in late 2008 and early 2009, hence the awkward lack of numbered end notes (there is a chapter by chapter list of sources but it is much harder to cross reference). However the analysis doesn't really suffer because Sowell has been writing about aspects of the crisis for years before the actual crash.