Sunday, January 4, 2009


Home ownership is, by common consensus, an integral part of the American dream. When precisely that became so, is open to dispute. Some might argue that it was part and parcel of the founding of the country: to immigrate, go west, and carve out a homestead on the frontier. Others, with a shorter historical horizon, maintain that this dream developed only after World War II: the prosperity of the 1950s, Levittown, the growth of suburbia.

Whatever one’s belief about the pedigree of the American ideal of home ownership, there is little argument that the government became thoroughly involved in that dream with the Community Re-Investment Act of 1977, with subsequent refinements to home ownership possibilities in 1989, 1992, 1994, 1995, and 1999. Banks were encouraged to expand credit opportunities to their entire communities, including offering home loans to those who normally would not be considered good credit risks. For the sake of argument, let’s attribute the motive behind all this to the best of intentions on Congress’ part – to expand the dream. Some have suggested more sinister motives, but we’ll leave that discovery to upcoming Congressional investigations. At any rate, now we are suffering the consequences of these best of intentions: liar loans, ninja loans (no income, no job, no assets), rapid unloading of questionable and unfathomable “assets,” bank failures, and bailouts.

Eerily enough, something quite similar happened in ancient Rome. In the first century BC Julius Caesar decided that members of the upper classes should hold part of their assets in Italian land. Admittedly, the ideal of the citizen-soldier-farmer had always been part and parcel of the Roman dream: the ideal was the involved citizen, who spoke in the Forum, fought in the ranks, and then retired to the farm to till his fields. The embodiment of this ideal was the fifth century BC hero, Cincinnatus: politician, warrior, and, duty done, farmer.

But by Caesar’s time the days of Cincinnatus were gone. Most of the urban upper class did not fight and did not farm. More importantly, many couldn’t afford an estate in the Italian countryside. So, why did Caesar pass a law requiring that 1/3 of a wealthy individual’s assets be invested in Italian real estate? We could attribute the motive behind this act to the best of intentions on Caesar’s part – to revive the Roman dream and all the ideals that went along with it. But ancient authors suggest more sinister motives; Caesar wanted the “hoarders and speculators” to disgorge their hoarded cash. In ancient Rome it was traditional to impute every financial crisis to the clandestine activities of “hoarders and speculators.” (Like our hedge fund managers today, in antiquity “hoarders and speculators” were, with religious regularity, denounced as the agents behind every financial calamity.) But the ancient Romans did not immediately suffer the consequences of Caesar’s best of intentions. Caesar was assassinated and Rome came to have other things on her mind.

But in 33 AD the emperor Tiberius revived Caesar’s legislation, once again, to shake out the hoarders and speculators. The results were predictable. Families that couldn’t afford it found themselves with Italian rural real estate on their hands. There was an immediate real estate boom (a bubble?), followed quickly by a cataclysmic real estate crash. Land wouldn’t sell even at rock bottom prices. Panic ensued. Loans were recalled post haste. Fortunes disappeared. But the government would not let the Italian real estate market crash or people be dispossessed of their land. Tiberius floated a 100,000,000 sesterces loan to select “land banks.” Other banks and moneylenders were allowed to fail. Sound financial institutions refused to make loans. Some landowners just walked away (fled) from their lands. When the dust settled, the hoarders and speculators finally moved in and purchased Italian land at fire sale prices.

The full consequences of Tiberius’ follies are not known. Our two ancient sources both moved on to juicier tales of treason, incest, and court scandal. Many modern historians, however, see the beginning of the decline of ancient Italian agriculture in the government’s attempt to force land upon those unable to afford it and unknowledgeable about how to tend it.

The obvious difference between what happened in Rome and what is happening to us concerns the matter of compulsion. Ancient aristocrats were forced by the government to invest in Italian farmland; our government hasn’t forced anyone to purchase a home via liar and ninja loans. Many bankers, however, have yet to weigh in on this matter of government coercion and loan making.

The lesson for us, however, is not just the obvious historic parallel of the folly of government trying to manipulate real estate markets. The true lesson to be learned is that when governments try to manipulate economic policy to achieve even plausibly laudable ends, there can be some fairly catastrophic economic consequences, consequences that were not then and are not now even that hard to predict. We do not know if anyone had warned Tiberius of the consequences his actions might have. We do know that later emperors (Julian, for example) were warned not to try to manipulate the market. Again, Julian was trying to help the poor by undermining the hoarders and speculators who were driving up the price of grain. He ignored the advice and sent the grain market of Syria into a tailspin. Likewise, our Congress was warned in 2004 and 2005 about the impending calamity awaiting Freddie and Fannie. But, as Sophocles said, nobody loves the messenger bearing bad news. He might have added that people usually ignore the message.

FOR READERS IN THE HOUSTON AREA: I will offer a 6-lecture adult education series, "The Decline and Fall of the Roman Empire," in Houston beginning January 26, 2009. In this series I will examine the events, personalities, and causes of the decline and fall of Rome, and assess the validity of comparisons to the modern West. Information on this series and registration forms can be found at .


  1. The same attempt to force the land market also occurred during the reign of Trajan -- with the same results.

  2. What were motives in forcing real estate on the aristocracy as opposed to some other form of investment?

  3. Analysis and argument based on historical analogy is fraught with risk and subject to abuse. For an excellent introduction to a systematic approach to historical analogy see Thinking in Time: The Uses of History for Decision-Makers by Richard Neustadt and Ernest May (1988).

    Perhaps the only certainty with respect to a public policy decision is that the "decider" will fail to anticipate unintended consequences of the decision. Frequently (always?), unintended consequences dwarf the articulated policy rationale. Hence, "the road to hell is paved with good intentions."

  4. The parallel of government out of control and the ignorance of unintended consequences is remarkable. Is there a historical parallel with the promotion of ethanol as a fuel alternative? It now is clear that ethanol does not reduce imports of petroleum, but has increased a world famine, pollution caused by runoff, and is more hazardous than other fuels. Yet the infrastructure of ethanol and its subsidies are embedded in our government policies.

    Redistribution of wealth is another government policy that will have serious unintened consequences. Is there another historical parallel?

    January 5, 2009 3:11 PM

  5. I can't speak to the historical parallels of the current housing situation but I do know that the foundation for governmental action was the fact that entire areas were red-lined, i.e. loans were not made in those areas or were virtually impossible to obtain.

    The government didn't force lending agencies into the totally irresponsible actions that they engaged in, the government did not force financial institutions to buy these loans without regard for their stock and bond holders, nor did the government force individuals to buy more house than they could afford.

    What the government should be blamed for is its total lack of oversight. We greedy citizens must bear the rest of the blame.