Earlier this year a friend of mine and his wife got a mortgage on their new home. (As of today, they have only been married three hundred and fifty-three days.) Let me just say that the price of their home is well into the six figures. They borrowed twenty percent of the purchase price. Both of them have established, on their own, a credit rating of at least A and they pay off all of their revolving credit every month.
About two months after signing the mortgage my friend came to see me. He could not believe that his mortgage was now owned by Fannie Mae! Never in his lifetime did he expect to have a mortgage of his owned by this organization!
But, this is a part of modern America. It is a part of the whole effort by government for people to own "things." Owning "things" in America is good! Monarchs and other royalty owned "things". The evolution of the wealthy capitalist included owning "things." It became the right of every American to own "things."
And, this desire to own "things" played right into the hands of greedy politicians because politicians could promise to deliver "things" to the people that elected them and thereby get elected and re-elected. In the twentieth century, the "thing" of most importance was a home of one's own. After all, the number one job of a politician is to stay in office!
Talk about financial innovations. The United States government is one of the most prolific financial innovators the world has ever seen. Just look at the last one hundred years: savings and loan associations, the Federal Home Loan Bank Board, the Federal Savings and Loan Insurance Corporation, the Office of Thrift Supervision, the Federal National Mortgage Association, the Federal Housing Authority, the Department of Housing and Urban Development, the Federal National Mortgage Association, the Government National Mortgage Association, the Mortgage-backed security, and so on and so on.
The surprise is that Fannie Mae and Freddie Mac don't own more mortgages than they do!
Government programs based on achieving outcomes generally fail. There are two reasons why they fail. First, the goals and objectives of programs focused upon outcomes are generally not based on economics but are based upon achieving desired social consequences. Second, if a program seems to contribute in any way to politicians getting re-elected, more and more resources will be put into that program going forward.
"Popular" programs based on outcomes seem to grow exponentially as each party seeks to "out-do" the other in promising even more to more people. The underlying economics of the situation do not seem to play any role in the cumulative expansion of such programs.
How can people improve things when they tend to hold onto the "old" assumptions? This is a very difficult problem.
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