Barney Frank doesn’t know what to do:
“I’ve said we should abolish Fannie Mae and Freddie Mac in their current form and come up with a whole new system of housing finance,” said Representative Barney Frank, a Massachusetts Democrat and the chairman of the House Financial Services Committee. “I can’t say when. And I don’t have any idea what that new system will look like. No one, I believe, knows. All we really know is that we need something new.”
Here’s an idea. Why not let people of who want to borrow money to buy a house convince the people who lend the money that there’s a good chance that the money will get paid back. Creative, no? It’s called voluntary exchange. Or a market. Or normal. Fannie and Freddie were abnormal. We don’t need a “new system.” The old system didn’t work because you, Barney Frank, and others, tried to steer it. Let’s have NO SYSTEM that you figure out and control and steer. Let’s let the housing market emerge that has the built-in feedback loops of profit and loss.
Here is some suggested reading for Mr. Frank:
From Hayek’s The Fatal Conceit:
The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design.
From Adam Smith’s The Theory of Moral Sentiments:
The man of system, on the contrary, is apt to be very wise in
his own conceit; and is often so enamoured with the supposed
beauty of his own ideal plan of government, that he cannot suffer
the smallest deviation from any part of it. He goes on to
establish it completely and in all its parts, without any regard
either to the great interests, or to the strong prejudices which
may oppose it. He seems to imagine that he can arrange the
different members of a great society with as much ease as the
hand arranges the different pieces upon a chess-board. He does
not consider that the pieces upon the chess-board have no other
principle of motion besides that which the hand impresses upon
them; but that, in the great chess-board of human society, every
single piece has a principle of motion of its own, altogether
different from that which the legislature might chuse to impress
upon it. If those two principles coincide and act in the same
direction, the game of human society will go on easily and
harmoniously, and is very likely to be happy and successful. If
they are opposite or different, the game will go on miserably,
and the society must be at all times in the highest degree of
disorder.
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