Re: The Repo Market Time Bomb <37123862.C3CB1FC5@interport.net> <37125436.870F5B91@mindspring.com> <v0401171bb3381110ba23@[166.84.250.86]> <v04011721b3381726287e@[166.84.250.86]> <37126ACE.43E12460@interport.net> <371295FA.598B3348@elwha.evergreen.edu> <3712A2A1.47A2DAE8@interport.net>

[Peter Dorman <dormanp@xxxxxxxxxxxxxxxxxxx>]

I'm not a specialist in this area, and my main interest was in drawing
you out.  Nevertheless, there may be a case to be made that the ancien
regime of regulated financial markets and credit channeled to real
estate had something to be said for it.  Stability was one plus; I also
think collateral constraints (as analyzed by, say, Stiglitz) justify
social subsidy of housing finance.  (Also the facts on the ground, so to
speak: even today a great many Americans are poorly housed...)  The
pre-liberalization regime was controlled at many points, and it is
probably safe to say that by the end of the 1970s it was at a
crossroads: either lift the constraints (as happened) or extend them to
stem counter-regulatory innovation.

With all due respect to the (other) bearded one, I don't think Marshall
is the place to look for theory on this score.  Nor do I think that the
matter is primarily one of the assignment, pricing and pooling of risk,
since the deeper questions have to do with the generation of risk itself
(which increased tremendously post-1980).  On the empirical side,
something must be said about the apparent failure of the US to continue
the broad social progress it had made in housing during the period from
the end of WWII to the '70s.  (And in saying this I do not soften my
horror at the "little boxes" mode of housing development, nor at the
horrible social planning or lack thereof that accompanied it.)  Hasn't
something important been lost?



stan jonas wrote:
>
> Dear peter:
>
> Isn't this essentially what I said?
>
> Seems that the call to Popperianism got
> you to essentially lay out and correctly so..
> the question at hand..
>
> Not to be more Pedantic.. but the theoretical construct that I was refering to in
> A. Marshall
> was the notion of "partial equilibrium"..without
> which we wouldn't be able to break down this
> broad based problem nor any other in economics and begin to make sense of it...
>
> Considering the S&L crisis' outcome.. it seems clear that mortgage debt in the U.S.
> at least is a forgiveable debt...
>
> When we don't pay.. its the lender not the borrower that suffers, or the taxpayer
> that subsidizes the insurance that covers the loan...
>
> A look at the variance in mortgage spreads can show that at least "rational"
> speculators view this as a riksy business.. and that risk is precisely that the
> borrower will not repay.
>
> Its not a coincidence that taking the tax deduction into account, the lack of
> liablity etc, that the mortgage market is the best bet in town for the average
> citizen...
>
> funny how a different "theoretical" perspective might view the same "facts"..but
> that's being pedantic again..
>