Advice from long ago to avoid the financial crisis

I have been reading Henry Hazlitt’s “Economics in One Lesson: The Shortest and Surest Way to Understand Basic Economics”. It was first published in 1942 and most recently edited in 1979. It is an insightful book with many lessons for the modern day. Hazlitt saw the coming of the current financial crisis long ago. Too bad his advice wasn’t taken by the powers that be. He said:

“Government-guaranteed home mortgages, especially when a negligible down payment or no down payment whatever is required, inevitably mean more bad loans than otherwise. They force the general taxpayer to subsidize the bad risks and to defray the losses. They encourage people to “buy” houses that they cannot really afford. They tend eventually to bring about an oversupply of houses as compared with other things. They temporarily overstimulate building, raise the cost of building for everybody (including the buyers of the homes with the guaranteed mortgages), and may mislead the building industry into an eventually costly overexpansion. In brief in the long run they do not increase overall national production but encourage malinvestment.”

Henry Hazlitt. Economics in One Lesson: The Shortest and Surest Way to Understand Basic Economics. Page 47. Three Rivers Press, New York. 1979.