segunda-feira, 21 de abril de 2008

A origem do problema II

"The subprime crisis is none of these. Its origin lies in a housing price bubble brought about by excessive central bank money creation and the subsequent puncturing of this bubble. The price declines in housing then induced the large rise in foreclosures of the recent past and present.

Fiat money inflations often bring on real estate booms followed by busts. These inflations are the common element in real estate cycles that span many countries and many centuries, and they put the lie to the hypothesis that bad lending practices are the culprit. Fraudulent money creation is the culprit, not faulty evaluation of the credit risks of borrowers.

Jesús Huerta De Soto’s book
Money, Bank Credit, and Economic Cycles provides documentation of cases. For example, real estate prices fell by 50 percent by 1349 in Florence when boom became bust. That boom was fed by bank money creation:

"Evidence shows that from the beginning of the fourteenth century bankers gradually began to make fraudulent use of a portion of the money on demand deposit, creating out of nowhere a significant amount of expansionary credit. Therefore, it is not surprising that an increase in the money supply (in the form of credit expansion) caused an artificial economic boom followed by a profound, inevitable recession."

In the face of excessive money, lenders tend to adopt laxer standards for making loans. Borrowers and investors tend to use higher amounts of leverage. Asset prices rise. When the rate of money creation slows or halts and asset prices begin to decline, those who have bought houses at high prices, perhaps with little or no equity of their own, quickly find themselves in a position of negative equity, with their promised loan payments exceeding their house values.

This induces default and foreclosures."
The Subprime Crisis and Government Failure by Michael S. Rozeff

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