There are many on the Right who say that the government is taking over our economy.  Most on the Left scoff at this and say it could never happen.  They say that all the new regulations, laws and taxes are just to regulate and steer the economy since they feel markets don’t do a good job.  Much of this steering comes from the Left and much of it was caused by overreaction to the great Crash of ’29.

So, do the folks on the Right have a point or are they just using scare tactics?  I think they have a point, and, it does scare me.

Take a look at the world of Real Estate.  Real Estate Assets are key to much of the economic activity in our Country.  The huge Construction Industry depends almost entirely on real estate assets.  Witness the great drop in construction activity that has gone along with the foreclosure crisis and the illiquidity in the real estate market.  What is it that makes the real estate industry and the construction industry thrive?  Cheap mortgage money.  When cheap mortgage money is available, that frees up money for construction projects.  The current tight money has badly hurt the real estate market and lowered real estate values dramatically.  In turn, the construction industry has taken a big hit because many projects can no longer be justified based on the new lower real estate values.

The government has taken over the real estate mortgage market and has steered (controlled) it over the past 40 years.  Anyone who doubts that the government has taken over the real estate market needs only to look at the backing behind their mortgage and the security behind 90% of all mortgages in the country now.  Fannie Mae and Freddie Mac now fund (secure) well over 50% of all home mortgages.  Ginnie Mae funds most of the rest.  Between them, over 90% of all mortgages are now government controlled.  This chart gives a quick overview of the past 9 years and is from a very interesting article in Seeking Alpha.


So what happens when a market is controlled by the government?  What will happen if the government loses interest or wants the money for something else (Health Care?) and does a fire sale of its mortgage assets?  I don’t think it is too different than when someone corners a market and can control prices.  It is not a pretty picture.  I have recently read predictions that our real estate values still have up to 40% more to decline before they hit bottom.  Until I realized the depth of government involvement in the pricing of mortgages, I would have thought that a joke.  Not now.