Wednesday, February 11, 2009

The Case Against Fannie and Freddie, as Made in... 1946

Government-guaranteed home mortgages, especially when a negligible down payment or no down payment whatever is required, inevitably mean more bad loans than otherwise. They force the general taxpayer to subsidize the bad risks and to defray the losses. They encourage people to “buy” houses that they cannot really afford. They tend eventually to bring about an oversupply of houses as compared with other things. They temporarily overstimulate building, raise the cost of building for everybody (including the buyers of the homes with the guaranteed mortgages), and may mislead the building industry into an eventually costly overexpansion. In brief, in they long run they do not increase overall national production but encourage malinvestment.

From Chapter VI "Credit Diverts Production" in Henry Hazlitt's "Economics in One Lesson," first published in 1946

HT: Prof. Mark Perry

I got "Economics in One Lesson" as a present for the last holiday season. It was slowly percolating to the top of my stack of books to read; it just jumped to the top.