The Austrian Economists bring to our attention an excellent column in the Financial Post of Canada. In it, George Bragues scores one for the Austrian school, summarizing the failure of the bailout and the cause of the “crisis” in the first two paragraphs Before he’s done, he puts to rest the notion that Hoover was the “do-nothing” president. Quite the opposite, with today’s events having an eerie similarity to the days leading up to the Great Depression.
Two fallouts from the bailout don’t bode well for the taxpayer or the lower income levels. The two being artificially high prices for both mortgage securities and housing:
There being pressure to expedite the transfer of securities and assist the banks, the government is very likely to acquiesce to this resistance, pay above market and effectively institute a price support mechanism for mortgage assets.
Besides the public relations mess of having a throng of failed borrowers compelled to give up their homes by a government agency, the fear of contributing further to the decline in the real estate market means foreclosures will probably be kept to a minimum. In this way, the Paulson scheme will also turn into a price support regime for housing.