A No Nonsense Explanation

If you want to learn why this latest economic crisis began explained colloquially in ordinary language, then Thomas Sowell's "The Housing Boom and Bust" is definitely a must read. With an economists acumen combined with the journalists touch, Sowell navigates us through the complex processes involved with the origins and the politics of housing.

I won't go through the details as Sowell's short book does a great job explaining them, but I will highlight what I thought were unique insights into the subprime crisis. Firstly, Sowell explains how certain housing markets like California had certain restrictions like lot-size laws, agricultural and environmental land reserves, which ironically helped accelerate the boom-bust cycle by artificially inflating house prices. As Sowell shows, this was in stark contrast to places like Dallas. This leads into one of Sowell's primary arguments, that government intervention actually led to the crisis through it's crusade for "affordable housing." So instead of removing these developmental restrictions, the government simply sought to force the private sector to make it easier to loan to the so-called 'subprimes' thus making housing more affordable for people with low-incomes.

I think a disclaimer though is in order. Sowell is a conservative, and so therefore his selectivity reflects his political biases. For example, Sowell does not even mention the "structural investment vehicles" like mortgage-backed securities or credit-default swaps which hedge funds used to finance these subprime loans. This unregulated securitization and financial innovations in the mortgage bond market is fundamental in understanding the macroeconomics of the crisis and the international scope. Although, not specifically in the scope of this book, Sowell's omission is rather unfortunate because it does distort the picture. The only other criticism is Sowell's over-emphasis on California while only briefly mentioning Cleveland which is often thought of as the center and origin of the subprime crisis, of which many homeowners were not actually subprime but were manipulated into refinancing or reversing (coincidentally, most were working-class black homeowners).

The book is incredibly relevant in learning about how and why we got to where we are now. I've read many books on this subject and I can say with confidence that Sowell's book is probably the easiest to understand and one of the most transparent. Overall, this is a must read. ( )

This is simply the best book I've read on the current recession (and there are several out). Sowell is concise in language, walks us through the economics of the situaiton step by step, and is quite even-handed when laying blame. (Unlike Morris in Catastrophe, he is not stumping for one party over another.)

Sowell's main point here is that the government carries the majority of the blame, as they were the ones who, through HUD, the Community Reinvestment Act, and their laxing standards for Fannie and Freddie, they pressured banks into issuing loans to those who can't repay them, in a plan to introduce an "ownership society." Predictably, many of these loans got defauled on. And Sowell offers many reasons why the current bailout will not fix, but prolong, the problem.

Sowell is not againt regulation per se, but takes a much more skeptical approach of it than Posner or Morris. His suggestion, though, on how to get through the recession, though, is to let money flow to productive channels rather than forcing it to areas it may not normally go (like what the bailouts are doing). And Sowell reminds us that to avoid such catastrophes in the fuure, we really should let banks be the assessors of their own risk, rather than having government tell them who and who not to lend money.

Excellent, excellent book. Why would we expect any less from this great economist? ( )

Sowell starts in familiar territory, with building restrictions driving up house prices and affirmative action forcing loans on unworthy borrowers. He points out, as he has often done before, that the discrimination towards Blacks and Hispanics by White bankers is disproved by their willingness to lend to Asiatic Americans beyond that of Whites, and he debunks some of the building restrictions claimed as nature friendly as actually pure egoism by people wishing to keep new inhabitants out.
Senators Christopher Dodd and Barney Frank are presented as examples of eager interventionists, forcing unsound banking practises on the market, and when the inevitable sad results appears, adamantly blaming the free market.
Sowell ends with some thoughts on the disastrous interventionism of Hoover and Roosevelt and President Obama’s apparent willingness to follow in their steps.
An easy read: Sowell has a great command of his language and the book is short - I’d call it well spent the afternoon I spent reading it, but I would not claim I encountered much in the way of new insights. ( )