Tuesday, July 19, 2011

Fannie, Freddie, and the Three “Crises”

By Scott Sumner

There’s a lot of discussion now about the role of the GSEs in “the crisis.” Unfortunately, not everyone is talking about the same crisis. Some are talking about the housing bubble/crash, some are talking about the late 2008 financial crisis, and I believe both groups have the 2011 unemployment crisis in the backs of their minds (otherwise why is the debate seen as being so important?) After all, there is no similarly high-charged debate over the auto crisis/bailout/sales slump.

Let’s start with the housing crisis. A major theme of the Austrians is that too many houses were built in the mid-2000s, and the resulting slump has led to high unemployment. Here are US housing starts per capita going back to 1960:

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