[cryptography] Nothing to do with digital cash in the news...

John Levine johnl at iecc.com
Mon Jun 13 01:33:17 EDT 2011


> ... I don't think it's fair to blame private financial institutions
>for the ill-effects of an ill-advised government plan to subsidize
>housing ownership by individuals.  Without Frannie, CRA, or anything
>of the sort I don't think we'd have seen the degree of
>financialization of housing that we saw, meaning that we wouldn't
>have seen the home mortgage credit growth that drove the housing
>bubble, thus neither the bubble nor the crash.

Sigh.  This is both unrelated to crypto, and just plain factually
wrong (although it is considered gospel in some political circles.)

Until very late in the bubble, Fanny and Freddy bought only
conventional prime fixed rate loans, so it was roaring along without
their help, and the CRA has been around since 1977, so if it had
caused a bubble, it would have been during the Reagan administration.
The housing bubble was due to the complete abdication of
responsibility by the bank regulators and the rating agencies,
allowing amoral banks to make mortgages with no realistic chance of
repayment, and then to repackage that garbage into allegedly AAA
derivatives, and to issue ever more highly leveraged Nth degree
derivatives of derivatives.  

See, for example, Brad Delong in 2008: http://delong.typepad.com/sdj/2008/09/the-cra-and-the.html

I suppose the lesson here for cybercurrencies is a reminder that the
track record of unregulated financial markets is consistently
terrible.  Look at the economic history of the pre-federal reserve US
if you don't believe me.

Perhaps this would be a good time to bring this thread to an end, so
we can talk about something cryptographic for a change.

Regards,
John Levine, johnl at iecc.com, Primary Perpetrator of "The Internet for Dummies",
Please consider the environment before reading this e-mail. http://jl.ly



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