Vermont’s strict mortgage lending laws helped the state avoid a housing train wreck. However, Vermont missed out on any part of the boom. Is the trade off worth it?
That’s a question that continues to rattle around in my head following a Wall Street Journal story on Tuesday. The story detailed how some Vermont home buyers weren’t able to get credit due to the state’s mortgage laws. In the 1990s, Vermont pass laws that made mortgage lenders warn consumers about high rates and put brokers on the hook for defaults.
Given those laws it’s not too surprising that lenders didn’t give credit to just anyone. And that means some creditworthy buyers were locked out. The Journal notes that Vermont’s 10-year growth trails the U.S. average.
Today, Vermont’s move looks like a no-brainer, but how many folks would be able to curb growth to avoid a car wreck that may not come for decades?
It’s a question worth pondering since the U.S. is likely to launch a bevy of regulations to prevent bubbles in the future. Regulation will curb future growth, but keep bubbles from popping in the future. Call it bubble management if you will. Is this approach worth it?
Vermont certainly thinks so. Politicians are trumpeting success. Critics detail their views in this key excerpt:
Vermont politicians are “patting themselves on the back because we saved ourselves from this catastrophe,” said Joel Schwartz, director of the economic development office for St. Johnsbury, a town in northeast Vermont. But developers and others “can’t march into the state and start doing business.”
In any case, the debate over bubble management is likely to intensify. After all, the time for regulators to strike is now. Once the next bubble gets going, there’s no way that legislators will have the guts to put the brakes on an economic growth engine—even a fleeting one.
Should we try to prevent and actively manage potential economic bubbles? Is it even possible?