The Housing Boom and Bust
by Thomas Sowell
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Book Summary Information
Author: Thomas SowellEdition: Hardcover
Audio: English (Unknown); English (Original Language); English (Published)
Published: 2009-04-24
ISBN: 0465018807
Number of pages: 192
Publisher: Basic Books
Book Reviews of The Housing Boom and Bust
Book Review: A Contrarian Stance That Fills in the Gaps Left by Mainstream Media
Summary: 5 Stars
I am reluctant to post a review of this book as I am not so impassioned by politics or economics as the other reviewers. I am neither an economist, financial professional or political junkie, but obviously my life is affected by politics and for years as a homeowner, I have kept abreast of the housing situation. Aware enough to avoid taking an ARM, home equity loan, or the full amount of mortgage offered to us, my husband and I have been sometimes amazed at what was being offered as both advice and actual loans to our generation in the guise of "a helping hand". The impossibility of it all meant that something had to give at some unknown future date and we just hoped to escape most of the ill effects.
Stanford scholar Thomas Sowell has written a short, but not breezy (remember this is economics,) treatise of the history of the modern housing market, in particular the events and policies leading up to the housing crisis and collapse of Fannie, Freddie and other once venerable financial institutions. All of us with mortgages ourselves use have glimpsed a portion of the process as we signed onto our loans, but Sowell provides a solid overview of the entire system and clears up much confusion about how the different pieces of the puzzle fit together.
How did Freddie and Fannie get involved when I got a loan through my local bank? Why did banks offer risky loans? Often as consumers of media we hear many financial terms bandied about without clear definition and we are left to come up with our own, usually erroneous idea, of what they mean. Sowell defines the terms clearly so that we no longer remain bemused, and most importantly, can use those parameters to assess our own housing situation more clearly.
Sowell gives a lot of copy to the racial quotas imposed on banks in order to further the goal of what politicians perceived as "affordable housing." Sowell argues these quotas forced banks to lower lending standards and come up with creative financing solutions. To his credit, I don't know of another author willing to take this one on. Knowing how ideology influenced this crisis clears some of the fog as to why banks would issue such loans? Most of us don't know much about federal banking regulation, but I don't find it hard to believe that ideology was a factor in creating policies whose implementation was much trickier than originally assumed. I have never heard this factor considered as part of the housing crisis and I as a citizen am thankful that Sowell was brave enough to put this information out there and provide commentary that is certain to make him unpopular in many circles.
What I found disappointing as I read was Sowell's total emphasis on racial quotas as the primary factor in questionable loaning practices. I don't think we can dismiss greed because as humans we instinctively know that it is a factor, especially when dealing with money. The author pounds the racial quota regulations so much that the reader is left to assume that he advocates no banking regulations. I wish conservatives would do a better job of explaining themselves on this issue. Which regs do they consider beneficial, which deleterious, and why? It goes back to my human understanding of greed which informs my distrust of complete deregulation. For those of us with the family photos of coal miners working during that horrific period of abuse and degradation we know that the free market left solely to its own devices does not give unilateral benefit in every situation. Sometimes conditions are so terrible and so entrenched it takes a force as large as the government to step in.
We hope that the market itself will impose some kind of self-monitoring but the people in charge of the businesses that make up our capitalist economy have not always balanced the common good with making an honest profit. Whenever I hear rants about the evils of regulation I am as uneasy as when I hear stumping for how a new social program will usher in a brave new world.
But even with these reservations I am giving the work five stars because you are not going to be presented with this content anywhere else and it is important to see as many sides of the issue as possible. It is devoid of the salacious asides concerning greed and cupidity provided by other authors, but you will receive an eminently clear explanation of how individual loans are connected to the larger American economy.
"In a complex story about intricate financial arrangements, it is possible to lose sight of a plain and fundamental fact - that behind all the esoteric securities and sophisticated financial dealings are simple, monthly mortgage payments from millions of home buyers across the country. When many of those payments stop coming, no amount of financial expertise in Wall Street or government regulatory intervention from Washington can save the whole investment structure built up on the foundation of these mortgage payments. (page 118, @2009 Basic Books)
Accessible to professionals, political junkies, and everyday folks, this is a great book for all of those seeking to hear contrarian opinion as a counterbalance to conventional understanding of the housing boom and bust.
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