Somewhere around a year ago I downloaded and listened to a series of shows produced by or with This American Life, relating specifically to the economic crisis. These shows turned out to be a great synopsis of just how layered our financial system has become; documenting how mortgages are created, how mortgage companies bought crap, and then securitized it as thought it wasn’t. What these shows failed to clearly state is why?
Why would people(I am going to call Banks, and businesses people), enter into such high risk agreements? Knowing full well, despite being labeled as low risk by rating agencies, what was contained in the bundled loans. The pursuit of this answer led me to the following conclusion. When reality is manipulated, reason is undermined.
Reality has been warped in this country since before the great depression. The currency which we all find useful and powerful has been the driving force of market manipulation. Our current system since Nixon is a Fiat money, of which its supply can be manipulated by the Federal Reserve. The Federal Reserve(FED), has exclusive power over currency in the US without exception.
The supply of money took a startling turn for the worse in the late 70′s when turning from a loosely gold backed currency to a complete Fiat currency under the Nixon administration.
So long as the Fed kept printing money home prices were bound to continue to rise, it had to end somewhere. Before it did end a lot of people, like water, took the path of least resistance and hedged there investment bets on a long trend. Banks saw even the highest risk homes foreclosing as a no risk proposition… if the person stayed in the house and lost their means to pay, they could sell it for more, and if they couldn’t the bank could.
I will admit the simplicity of my argument overlooks many other factors, but the fundamental principal is true. A manipulated currency caused our problems. A currency which by government decree could open the floodgates and manipulate markets, thus causing reckless risk taking. The inflation seen in third world countries was excepted by us homeowners in the raising values of our homes as a net benefit.
Home prices like all other goods, needs to be left to free markets to fluctuate based on supply and demand.
Josh
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Josh Gore is a product designer, wannabe inventor, and once upon a time film maker. He spends the majority of his time breaking and fixing things that move on four wheels and pollute the environment, although recently has re-ignited his passion for human powered 2 wheel rock crawlers.
As I see the “related posts” at the bottom of your article, I notice that there are only two other times that any posting on this (albeit young) site has come close to the importance of yours, speaking on current affairs and such. Thanks for helping us class up the joint, and reminding us that there are more pressing and relevant issues at hand other than cool indie bands or the latest trendy movie. I really enjoyed the write up.
Evan,
I was feeling very distraught over contributing, your comment cured me of this thought.
Thank you….
Josh