Arnold Kling  

Housing Policy

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I spoke at a forum on housing finance reform. I have low energy these days, but viewing the talk it is not bad. It starts about minute 3 and goes to about minute 26.

One of my themes is that government intervention in the housing market is based on misconceptions. For example, we seem to view mortgage borrowing as a savings vehicle for the middle class. However, this is only true for periods when house prices rise dramatically. Overall, I argue that policy is based on a narrative that exaggerates the benefits of government intervention and understates the risk.

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COMMENTS (2 to date)
ThomasL writes:

I thought it was an interesting talk. Mark me down for Jimmy Stewart style. The video ends right after Dr Sanders speaks, so we don't get any of the Q&A.

Did you have an opportunity to give responses Dr Sanders?

Arnold Kling writes:

I did not respond to Tony. Again, I have been low-energy the last several days. I thought some of the questions were interesting. People wondered about consumers taking interest-rate risk with ARMs.

I think that interest-rate risk is likely to go wherever the government provides a guarantee that is poorly defended with regulations. That is why the "devil-you-know" strategy has some appeal to me. I worry that if we don't have a system dominated by Freddie Mac and Fannie Mae, the interest-rate risk will wind up in some AIG-like entity that sells derivatives in massive amounts, thinking that interest rates could never behave in some particular way.

But even with that concern, I still prefer having the government attempt to get out of the mortgage guarantee business. The challenge is to stay out of the guarantee business, even if some market participants mess up.

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