Oct 05 2008
Welker’s daily links 10/04/2008
Published by Jason Welker at 12:30 am under
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How Government Stoked the Mania - WSJ.com
Is the financial crisis purely a result of market failure? Professor Russel Roberts doesn’t think so. Read this great post to learn how the government may be the real culprit behind our financial mess.
“…before we conclude that markets failed, we need a careful analysis of public policy’s role in creating this mess. Greedy investors obviously played a part, but investors have always been greedy, and some inevitably overreach and destroy themselves. Why did they take so many down with them this time?
Part of the answer is a political class greedy to push home-ownership rates to historic highs — from 64% in 1994 to 69% in 2004. This was mostly the result of loans to low-income, higher-risk borrowers. Both Bill Clinton and George W. Bush, abetted by Congress, trumpeted that rise as it occurred. The consequence? On top of putting the entire financial system at risk, the hidden cost has been hundreds of billions of dollars funneled into the housing market instead of more productive assets.
Beware of trying to do good with other people’s money. Unfortunately, that strategy remains at the heart of the political process, and of proposed solutions to this crisis.”
About the author: Jason Welker is a teacher at Zurich International School in Switzerland, where he teaches Advanced Placement and International Baccalaureate Economics. Jason was an international school student in Malaysia before studying economics at Seattle University then earning his Masters in Education. He calls Seattle and Northern Idaho home. In addition to maintaining an economics wiki and this blog for economics student and educators, Jason also gives presentations on using Web 2.0 tools in education at workshops and conferences around the world. His economics wiki won the 2007 "Best Educational Wiki" award from the "EduBlog Awards". 
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I want to agree with Professor Russel Roberts, who is the oppinion that the financial crisis is not all the fault of “greedy” investors, since they have always been there. But the fault of the government, since the previous presidents had supported the push in home ownership rates largely.
In my opinion this is very true, since the government has not thought about the future consequences of this move. The imminent results were lovely, since the home ownership rates had increased from ” 64% in 1994 to 69% in 2004. This was mostly the result of loans to low-income, higher-risk borrowers.” Its a move the government should have thought more clearly about taking, since the risk was to big.
I will not begin to criticize what Professor Roberts has said nor will I deny it; I most likely do not possess the same amount of knowledge or experience in economics as he does, I do however see things differently.
As an investor, it is logical to want your investment to bring in money; why else would anybody invest anywhere if they did not seek that? Therefore investors can actually not be viewed as “greedy”, it is only natural to want to benefit, and that is capitalism. Furthermore, we can not solely hold the government accountable for all the wrong investments, since the United States is, more or less, a laisser-faire economy that lets the invisible hand control the market. I think they probably should have paid more attention to the where what was being invested and found a solution before we lapse into another depression. You may think: well then if not the government, who is to be blamed? All the blame can not be set on one unity, but rather on many, banks more than any other. Who was it that used the people’s money to invest in the housing? Banks. What is definite is that they have severely neglected their job and, especially the Swiss bankers, have just sat back and enjoyed huge bonuses. Even now bankers are collecting bonuses, and for what? For pushing the world as close to a great depression as only seen in the 1920s! They trigger the financial crisis and we punish them by paying them! That defies all logic. That is one reason why not greedy investors or the government should mainly be blamed, but rather those that made the investment, which were the banks.