ON-Lion Letter
There have been many alarming warnings in the media of economic calamity stemming from the subprime housing-market collapse.  "Analyzed relative to the economy as a whole, however," according to a January paper from the Competitive Enterprise Institute (CEI) in Washington, D.C., "the current subprime crisis appears likely to a significantly smaller impact than the S&L crisis or the housing foreclosures that took place during the Great Depression."

The savings-and-loan crisis of the late 1980s and early 1990s involved assets of between 8% and 10% of the country's Gross Domestic Product (GDP), Eli Lehrer and Matthew Glans note in "The Subprime Crisis in Historical Perspective."  The subprime crisis represents about 3.5% of GDP.

At the height of the Great Depression in 1932 and 1933, moreover, approximately 10% of all mortgages entered the foreclosure process, according to Lehrer and Glans in the CEI paper, and the foreclosure rate stands at between 1.4% and 1.5% today.

Lehrer is a CEI senior fellow.  Glans is a legislative specialist at The Heartland Institute in Chicago.

"It is not a major crisis," they conclude, and "thus is no reason for drastic action -- which itself could have unintended negative consequences including reduced homeownership, less liquidity in the housing market, and a reduced level of economic freedom and prosperity for all Americans."

The Lynde and Harry Bradley Foundation supports both CEI and Heartland.
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