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Television advertising in the 1970s had a campaign for Chiffon margarine where the taste supposedly could
not be differentiated from butter. This aroused the ire of Mother Nature after she could not tell natural from
artificial. The tag line was “It’s not nice to fool Mother Nature.”
Fooling the American Public – Act 1
The same foolery was foisted on American households by the Federal Reserve during the housing bubble.
- Ultra-low interest rates fooled households into under estimating their cost of capital and over estimating
their purchasing power. Housing was bought with mortgage debt that could not be serviced out of current
- Cash-out refinancing fooled households into over estimating their disposable income, leading to chronic
- Credit-induced increases in housing values caused households to ignore the need to save out of current
Cheap credit deluded a wide swath of American households into leading lifestyles that could not be afforded. In
the end, large numbers of households became slaves to mortgage obligations.
Unwilling to let the parties directly involved in loan transactions bear the consequences, the government has
transferred much of the cost to taxpayers via subsidized loans to banks and support for Fannie Mae and Freddie
The sorry reality of the situation is that excessive private borrowing aided by the government results in future
claims on taxpayers.