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Addressing Mortgage Malinvestment (Part II)

David Skeel of Penn Law School has a good piece in today’s Wall Street Journal and Todd Zywicki of George Mason Law School in this week’s Forbes as both have good reviews of the recent well-publicized mortgage settlement. David points out that (picky-picky) there does not seem to be much of a connection between the settlement and any underlying analysis of the facts and that the government-led extractors “treated the case as an opportunity for photo-ops and high-level negotiations.” Todd focuses his analysis on the likelihood that this is merely an initial installment of such extortive agreements which will lead to continued uncertainty in the mortgage market. All of this leads to the conclusion that we are far away from any type of free banking world where the mortgage market is allowed to fall back into balance, a point I made on the Dylan Ratigan Show a few weeks ago with particular emphasis on winding down Fannie Mae and Freddie Mac.


  1. Whenever anyone suggests serious reform in this area the objection is always the same "the housing market will crash".

    This objection fails to understand that the market HAS to crash – the malinvestment has to be liqidated. Presently there are large numbers of homeless people and large amounts of empty houses and apartments – the market must "crash" so that the price of accomidation (to buy or to RENT) comes down so that these people can afford to get into the market – and such a fall in price will have to be dramatic indeed, as their incomes are very low. Otherwise the market will not clear.

    Of course the market varries over a place the size of the United State – not everywhere needs a property price collapse. But somewhere like (for example) Nevada does.

    "But prices have already fallen dramatically" – look at the number of people without decent accomidation in the Las Vegas areas and the amount of empty accomidation. A true price crash is needed.

  2. Vern,

    Watched your interview on the Dylan Ratigan Show. Very succinct and exposes well the incompetence and systemic breakdown of the US mortgage system.

    Michael Reber
    Tokyo, Japan

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