Mortgage Securities and Porn Videos
By Arnold Kling
Robert Shiller complains about groupthink among policymakers. He means that they didn’t heed his warnings of a housing bubble.
My complaint is about the groupthink that says we really, really must revive the mortgage securities industry. Instead, I suggest thinking about it as if it were the porn video industry. Both of them were essentially nonexistent forty years ago, before video cassettes and before GNMA. Both are ubiquitous today.
Suppose that it were the porn video industry that had collapsed. Would we need to bail it out? I would argue otherwise. I mean, whatever people, er, accomplish by watching porn videos, they were able to accomplish it before there ever were porn videos.
Similarly with the mortgage securities industry. People were able to buy houses and finance them with mortgages before there were mortgage securities.
Ben Bernanke says otherwise.
Bernanke emphasized that during the financial crisis, very few mortgages have been issued that did not have implicit federal backing. This, Bernanke said, demonstrates the need for some government role in lending.
Maybe he has the causality reversed. Because Fannie and Freddie enjoy explicit Federal backing and essentially no capital requirements, they are able to drive ordinary banks out of the mortgage market.
Anyway, next time you hear Ben or Hank or Barney or some other leader proclaim the importance of the mortgage securities market, imagine that they were advocating the equivalent government support for the porn video industry.
Keep comments well within the bounds of taste, please.