Bold Thinking?

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.

One response to “Bold Thinking?

  1. So let’s get this right:

    The Federal Reserve creates the artificial prosperity of the late 1920s, helps finance the ill-fated attempt to stave off a collapse once stocks started to tank in 1929, and then the federal government (first under Hoover and then FDR) ensured the Depression via Hawley-Smoot, tax hikes, and wealth-wasting “employment” programs.

    And government is supposed to fix the problems it has similarly been creating in the last several years?

    It’s federal home mortgage programs that have been the debacle, not the market. One of the most bone-headed things I ever heard of was some book blaming the current “subprime meltdown” on the repeal of Glass-Steagall! The author says that because commercial and investment banks could merge as they have, mortgages could get packaged as securities, yadda yadda. I guess he never heard of what Fannie Mae did for decades before Glass-Steagall, courtesy of a federal charter. Oh sure, it’s privatized, but let’s be realistic: the feds would bail it out, under the same “It’s to save people’s lives” rubbish thinking it’s used even before the S&L bailout.

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