Thoughts of Liberty

     A recent report commissioned by Freddy Mac clearly shows the priorities of these pseudo-governmental organizations, their democrat lead boards and the politicians that regulate and control them.  The report goes into the details of the “social benefits” which are provided including the dissemination through which they “increased the rate of home ownership, particularly for minorities and underserved populations.”  They fail to mention in this report the reason that these populations are “under-served” or by what measure they determine the proper level of service.  In the report commissioned by Freddy Mac in 2006 the writers hail Freddy and Fanny as promoting home ownership through “reduction in homeowners’ financing costs and to increased stability in the economy.” Things are very stable right now Freddy, thank you for your work.

    In fact the reason this population is “under-served” is because they don’t have enough money to actually pay for these houses.  This seems to clearly sum up the intent of Freddy and Fanny when deciding which loans to back:

 “The Impacts of Affordable Lending Efforts on Home ownership Rates” (2003). Professors Quercia, McCarthy, and Wachter develop a methodology to analyze the effect of affordable lending activities, such as flexible underwriting standards and lower required down payments, on home ownership rates by geographic region and targeted population. Using the American Housing Survey, they show that financially innovative products from the GSEs— many of which are financed by the retained portfolio —have been responsible for increasing the home ownership rate for minorities by as much as five percent.

Freddy Mac and Fanny Mae have provided funding for “financially innovative products” to increase home ownership for minorities by five percent.  I am all in favor of minorities owning homes but we should not encourage them to buy homes they cannot afford!  Freddy and Fanny control this market.  Various sources that I have viewed show an increasing market control held by Freddy and Fanny in the secondary mortgage market with some sources showing over 70% dominance.  With the clear biases of Freddy and Fanny to purchase loans made to these “under-served” individuals and families that the normal market would not loan to, or at least would not loan to with such lax conditions and rates, it should come as little surprise that bad mortgages have proliferated.  Due to pressure from democrats mixed with their control of the board for these companies there has been a strong market pressure for banks to loan money to those with poorer credit.  Since Freddy and Fanny where willing to buy these in the secondary market it was easy for banks to make these loans and then recapitalize by selling them to these GSEs.  On the contrary this behavior discouraged banks from making loans to better risk people because not only is there an added cost in getting good credit risks to choose your bank but because of the added difficulty of having to find a different secondary market since these where not as sought after by Fanny and Freddy who want to recapitalize banks serving “under-served” sectors.  In short it is the government funded attempt at social engineering that altering the free market and created this problem and not greedy banks on Wall Street.  The banks behavior was shaped by government and without that government interference these loans never would have been issued, housing prices would have been more in line with long run averages and this bubble and its subsequent and disastrous collapse would never have occurred.  All of this would have been avoided had the democrats in congress not forced their politics and social engineering.  No amount of regulation would have solved this problem on free markets!

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Fredric van Hayek was one of the most important members of the Austrian School of Economics.  He was born in Vienna, Austria-Hungary on May 8, 1899.  Coming from an academic family Fredric Hayek received a doctorate in Law and then in Political Science as well as studying psychology and economics.  Initially leaning towards a more socialist world view he soon changed to a more classical liberal view and later became a part of the Austrian School after hearing seminars by Ludwig von Mises and after studying under Friedrich von Wieser both prominent in the foundation of the Austrian School of Economics.   He shared the 1974 Nobel Prize in Economics with ideological rival Gunnar Myrdal "for their pioneering work in the theory of money and economic fluctuations and for their penetrating analysis of the interdependence of economic, social and institutional phenomena." He also received the U.S. Presidential Medal of Freedom in 1991.

                Hayek was known for his research and models which tended to conflict with the prominent Keynesian views of the time.  As a prominent part of the Austrian and Classical Liberal study of the day Hayek was a buttress against the Keynesian views and a part of the change back towards classical liberalism in the 80s through his shaping of the thoughts of world leaders like Margret Thatcher and Ronald Reagan who adopted many of his broader  ideas.  Probably his most popular work, The Road to Serfdom made 4th place on the list of “100 best non-fiction books of the twentieth century,” produced by National Review Magazine and several other top lists.  In The Road to Serfdom, Hayek explains that communalism leads inevitably to tyranny of some form and uses several contemporary examples from German Nazism to Russian Communism.  The book was so well written and bore such authority that even the proponents of communalism had to admit that the arguments where well reasoned and valid with people like John Maynard Keynes expressing his agreement with the premises of the book and communalists like George Orwell even admitted that his Hayek’s points where true and needed to be more seriously and regularly consider. 

                Even today the debates of communalism versus capitalism rages on and the Austrian School and the Classical Liberals are still at odds with the Communalists and the Keynesians.  In the struggle Fredric Hayek is a voice of reason, expressing the dangers of the communalism that sounds so promising in theory, but proves so dangerous to liberty in their practice.  Fredric Hayek should be studied by every capitalist and in my opinion “The Road to Serfdom” should replace Orwell’s “1984” on every school reading lists.