The Everyday Economist

Tyler Cowen highlights something that has been vastly overlooked in the media coverage of the mortgage crisis:

There has been plenty of talk about “predatory lending,” but “predatory borrowing” may have been the bigger problem. As much as 70 percent of recent early payment defaults had fraudulent misrepresentations on their original loan applications, according to one recent study.

Robert Shiller says that it is time for bold thinking in regards to housing:

The public response to the housing downturn of 1925-33 provides an important lesson in what government and private institutions can accomplish. Back then, people weren’t content with temporary palliatives. They were thinking big, and revolutionary changes were made in real estate institutions. Without those fundamental changes, the Great Depression would have been much worse than it was, and we would be in a more vulnerable situation today…

…our reaction to the current crisis is anemic in comparison. The “Super S.I.V.” rescue plan, instigated in October by Henry M. Paulson Jr., the Treasury secretary, in an effort to prevent a meltdown of the market for so-called structured investment vehicles, will be less than a tenth the size of the Federal Home Loan Bank System that is still with us from the 1925-33 debacle.

I am not sure that adding more bureaucrats in Washington classifies as “bold thinking.” Similarly, this quote is a bit troubling:

The radical financial innovations of the 1930s were possible because the real estate crisis and other economic problems of the Depression created a sense of urgency. Innovation, after all, tends to come in troubled times.

My thinking is more in line with Robert Higgs, who presents somewhat of a different thesis.