Liberty Maven

If you haven’t seen it already, there is an excellent article at FreedomWorks that offers an historical timeline of events that precipitated the current economic catastrophe that began last year:

To understand today’s financial crisis, you must understand the long history of government interference and subsidies for housing and housing debt.

[...]

Since the New Deal, the federal government has passed law after law attempting to shape U.S. housing markets. The U.S. today compels banks to lend to risky borrowers, skews the cost of housing debt and benefit of housing-related capital gains through the tax code, and operates several enormous government lending programs and taxpayer-backed corporations.

The net result is a wild, multi-trillion dollar overinvestment in America’s housing stock, the encouragement of dangerously overleveraged consumers and banks, and a massive new tab for taxpayers. The market is currently trying desperately to correct a government-created housing bubble, but the federal government’s response is to actually expand the government intervention that created the problem.

Here is the timeline of the actions that led to the current crisis.

1913 – The federal income tax is created.

The new law allows taxpayers to deduct their mortgage interest, among other interest expenses. This deduction was capped in 1986 but still exists today. Under the mortgage interest deduction, taxpayers are allowed to deduct interest from their primary residence, their second homes, and most home equity lines of credit. This deduction, which amounted to nearly $90 billion in 2008, increases the value of homes to borrowers by reducing the amount of taxes they have to pay, but also increases home prices, largely offsetting the potential benefit. Still, it creates a strong incentive to buy multiple homes and to use maximum leverage to do so.

[Continue reading]