A reader asked me to comment on Robert Shiller’s column, where he says,

In 1932, the National Association of Real Estate Boards proposed and Congress created the Federal Home Loan Bank System, modeled after the Federal Reserve System. Twelve regional banks were created, and a Federal Home Loan Bank Board, like the Federal Reserve board, was set up to oversee them. This was an ambitious plan: these banks were to be a special lender of last resort for real estate, discounting mortgages so that troubled banks and loan associations could keep issuing mortgages.

…In 1934, Congress created the Federal Housing Administration; it insured mortgages and insisted they be 20-year fixed-rate and self-amortizing.

The Federal Deposit Insurance Corporation, a radically new invention intended to prevent runs on banks from depleting resources for home mortgages, among other calamities, was also created in 1934. And in 1938, Congress created Fannie Mae, which eventually led to the huge securitization of mortgages.

Seven decades later, our reaction to the current crisis is anemic in comparison.

The way Shiller sees it, we have another housing crisis, so we need to create another set of new agencies and regulations.

Another way to look at it is as follows: all of the institutions from the 1930’s, plus some created since then, have not solved today’s problems. In fact, most of them contributed to the sub-prime frenzy.

The really bold thinking, in my view, would be to ask why we need to subsidize the heck out of home ownership. Saying we need to pour more government support onto the housing market is like saying we need to deal with obesity by increasing the allotment of food stamps.