A simple rule in economics is whatever you subsidize you will get more of. The government by assuming all the risk , forcing the loans and then buying those loans inflated the price of houses far beyond what a normal market would have supported.
The bubble worked as long as the economy grew because there was always a new sucker to buy the house at a higher price each time. The moment the economy contracted the facade become exposed and the whole artificial structure came crashing down.
The solution should have been to take the lumps and let the market sort out where capital should move to. They are still trying to hold up the whole rotten edifice to this day and my prediction is that only the final collapse of the dollar is going to stop it now.
Excellent post, thanks!
Today I was watching C-Span and saw all the add-ons to the Military funding bill, noting the billion dollars for "cash for clunkers."
First the government forces car companies out of business and takes over ownership of GM and now want's to subsidize cars for people so the car companies can recover!
With govornment handouts?
The dems are all over the republicans for not supporting the Military funding bill---which they support completely, funding the Military.
They voted against adding on all the foolish pork spending that the dems insisted on tacking to the bill.
The congress and white house is/are completely out of control!
I also watched a couple of hours of the Senate hashing out the Obama/Socialist health care fiasco.
It's astounding at what Dodd and the dems want to do to the excellent health care system we have in this country.