Jim Pickard:

Socialism is a dirty word in many parts of the US. After all, America is a global symbol of free markets, muscular capitalism and the small state. Yet somehow the government has turned its mortgage market into a giant nationalised enterprise on a par with China’s Red Army or Britain’s National Health Service.

US mortgage finance vehicle Fannie Mae, created by Franklin D Roosevelt to drag the US out of the Great Depression, underwrote around one in five mortgages during the 1940s. It was seen as the archetype of Keynesian intervention. Yet Roosevelt’s efforts have been eclipsed by those made by 21st-century governments around the world to pull their economies out of the post-credit crunch tailspin.

Today, in the US, almost nine out of 10 mortgages issued in the US are subsidised by the state through a bewildering array of state-sponsored groups. They include Freddie Mac, the Department of Veterans’ Affairs, the 12 Federal Home Loan Banks and Fannie itself. Housing, in other words, has become an arm of the state.

One of these groups, the Federal Housing Administration, is so integral to the market that without it prices could have fallen a further 25 per cent, according to Moody’s Analytics.

And at the same time the Federal Reserve is soaking up some $40bn of mortgage debt a month – through “quantitative easing” – with more than one eye on the housing market.

Ed Wallace:

“How come some tiny little California startup, run by guys who know nothing about the car business, can do this, and we can’t?” – General Motors Vice Chairman Bob Lutz, Newsweek, Dec. 22, 2007

In the last week of March I made my annual trip down to see my financial advisor, Josh Foster at Wells Fargo, to deal with my retirement accounts. I’ve known him for decades and, because his in-laws were among the finest individuals for whom I’d ever had the pleasure of handling automotive needs, I was a guest at his wedding. (We had a close enough relationship that I provided numerous vehicles for family members coming in from out of town for the wedding.)

Typically these annual trips don’t take much time. We talk for a few minutes, I write the check, and it’s over. I try to take as little of his time as necessary, because I know he’s extremely busy and I have no great investment plans to discuss. But this year was different; I no more got into his office than, for the very first time, he asked me an automotive question: “Have you reviewed a Tesla yet?”

Two Weeks, Two New Teslas
He was referring to the new Tesla S electric car, from the company founded by Internet billionaire Elon Musk. In fact I hadn’t reviewed it. But I have closely watched that company since its founding a decade ago. Personally, I’ve marveled at the visionary genius of what Musk has accomplished, but I also have a businessman’s appreciation for his company’s likely long-term capability of success.