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  • The Left Does Not Understand What Free Markets Are

    Late yesterday Portfolio.com reported that a bunch of powerful Washington politicians were given below market loans by Countrywide Financial. Among those receiving “special” loans that saved them thousands of dollars were former HUD Secretary Alphonso Jackson and Senate Banking chairman Chris Dodd (D-CT).

    Rounding up the morning’s news for his readers, online left leader Matt Stoller summarized the Portfolio story and then blithely comments: “Go free market!” Go free market?!? This story has nothing to do with the free market and everything to do with the inevitable rent seeking behavior that rational firms participate in when the federal government is given vast regulatory powers over their industry.

    For example Dodd is currently the chief sponsor of legislation that progressives like Stoller claim is needed to “do something” about the current mortgage crisis. But the legislation Dodd has authored would also, surprise, surprise, save Countrywide Financial from billions in losses. But it should be no surprise that Countrywide is looking for the government to bail them out of this mess … after all it was government market intervention that helped cause it. The government sponsored entity Fannie Mae is the biggest buyer of Countrywide loans.

    Fannie Mae and Freddie Mac do not actually lend money to borrowers. Instead, they make their money by purchasing loans, bundling them together and then selling them as mortgaged back securities. Due to their quasi-government status, Freddie and Fannie are exempt from state and local taxes and can borrow money at lower rates than their competitors. With these advantages, Freddie and Fannie have cornered the market on mortgage securitization. Most years, Freddie and Fannie help finance 40% of all U.S. mortgages. In the first quarter of 2008, they handled 80% of the market. If Fannie and Freddie were private entities, they would be a considered a monopoly by Department of Justice anti-trust guidelines.

    Fannie and Freddie are neck deep in the subprime industry as well. In 1995 Fannie and Freddie convinced the Department of Housing and Urban Development (HUD) to let them get affordable-housing credit for buying subprime securities that included risky loans to low-income borrowers. In 2003 Fannie and Freddie bought $81 billion in subprime securities. In 2004 they bought $175 billion — 44% of the subprime market. Now Fannie and Freddie are in the same financial hole as Countrywide. They suffered $9 billion in mortgage-related losses last year and are sitting on another $19 billion in additional losses they have not yet fully acknowledged.

    Fannie and Freddie’s enabling of the subprime crisis and Countrywide’s cheap loan giving practices are exactly why this country needs less government intervention and more free markets.

    Posted in Economics [slideshow_deploy]

    8 Responses to The Left Does Not Understand What Free Markets Are

    1. Trader, New York says:

      Let's return to the good old times before all of this bothersome market regulation! Who among us doesn't hanker for the halcyon times of the Panic of 1819, the Panic of 1837, the Panic of 1857, the Panic of 1873, the Panic of 1884, the Panic of 1890, the Panic of 1893, the Panic of 1907, and the Great Depression. Those were the days!

    2. Martha Bridegam, San says:

      The neoliberal right does not understand that free markets are amoral.

    3. Bill Ross, Ottawa, C says:

      And neither do most understand free markets and the absolute necessity of freedom for personal and civilization's survival.

      Basic Economics (why civilizations collapse):


      The suppressed solution our ancestors fought and died for:


      The real game. Wake up or perish:


      Ignorant bliss OR fight? Red or Blue pill? You choose for you, but not for me.

    4. Freedom, Tampa FL US says:

      Apparently Martha does not understand that economics does not deal in morality.

      Morality is an issue for human studies such as ethics and philosophy. Economics can never be morale as, if treated as what it is, a mathematical science, then it by definition cannot contain morality.

      The morality lies in how a particular economic system is used.

      I would love to see you try to explain how any economic system espouses any kind of morality.

    5. Bill Ross, Ottawa, C says:

      explained: economic system espouses any kind of morality.

      Life is time and energy. To achieve any goal (including economic) there are only three choices force, fraud or honest mutually agreed trade. Property is a measure of your previously achieved goals, which took you time and energy (life) to achieve. Any economic system which does not acknowledge or acts against your absolute right to keep the fruits of your labors except by honest trade is by definition usage of force or fraud to steal a portion of your life. It is morally equivalent to murder of whatever portion of your life it took to earn whatever is forcefully stolen or defrauded. Weighing the difference between murder and right to life is, without dispute, a moral argument, as is economics which is really about who gets what and rationalizations for why it must be so. Currently, the rationalization is "might is right".

    6. Martha Bridegam, San says:

      My point is precisely that "economics does not deal in morality." And therefore that it takes political and civic institutions to impose moral restraint on economic processes.

      Don't be mixing the normative with the descriptive here. Just because unrestrained economic processes are naturally amoral doesn't mean they should be allowed to destroy human lives.

    7. Pingback: The Real Danger of World Government « Conservative Thoughts and Profundity

    8. Kelvin93 says:

      While on the topic of e-mail, I am finding that students don't check their e-mail with enough regularity to deal with more urgent matters. ,

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