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Aftermath: The Unintended Consequences of Public Policies by Thomas E. Hall

By Thomas E. Hall

When govt imposes new taxes, principles, or laws, it creates results that frequently vary from the unique reason. every now and then, those results are so critical that they render the coverage a failure. The legislation of unintentional effects has taken on an expanding significance throughout the period of ever-expanding govt, and this publication explores 4 very important examples: cigarette taxes, alcohol prohibition, the minimal salary, and federal source of revenue tax. Thomas E. corridor examines how the rules got here into being, what underlying political concerns inspired the method, the unintentional results of the guidelines, and why lots of those guidelines are nonetheless in position. simply because lots of those unintentional effects are heavily opposed, the writer argues that the ethical of those 4 key examples is that every time a brand new govt coverage is being thought of, even more exact evaluate needs to be given to the variety of power accidental consequences—a perform that's infrequently or adequately undertaken.

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4 The sorry state of affairs was made even worse by the financial industry, which was busy creating volatile financial instruments (credit derivatives) against these mortgages, and in some cases betting the institutions’ fortunes on the assumption that housing prices would continue to rise. The Federal Reserve was also a big part of the problem because it maintained low interest rates during the first half of the 2000s, which encouraged Americans to borrow. Throughout that period, the government regulatory agencies in charge of monitoring the situation raised few alarms.

S. housing policies, the federal government was attempting to achieve the honorable goal of promoting homeownership but caused an economic catastrophe while doing so. The losses to society far outweighed the gains. How did this fiasco occur? Did the advocates of policies designed to promote homeownership not foresee the negative consequences? Or did they know there might be harmful effects but believed the benefits would outweigh the costs? 5 In this case, the answer appears to be that housing advocates understood that raising the homeownership rate would involve increased lending to risky borrowers, which would lead to more mortgage defaults.

The housing boom eventually played out as prices peaked in 2006 and then began to decline, slowly at first, then rapidly by 2008. Falling prices caused many homeowners—especially those who had purchased their homes near the peak in prices—to owe more on their mortgage than their house was worth (a situation called “negative equity” or “underwater”). This unpleasant financial position led some homeowners to abandon the premises and stop making payments on their mortgages. In addition, when prices started to fall, fewer potential buyers saw housing as a speculative investment.

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