Posted by: Paul | 06/17/2009

Raze This “Solution”

President Obama has a plan to, as the Washington Post puts it, “involve the government more deeply in private markets.” Making mortages more affordable, curbing the “reckless risk-taking that sparked the economic crisis” — your government is coming to save you, Fair Citizens!

Which would be a lot more comforting if government had a better track record of success. Or if it hadn’t played such a big role in creating the very crisis it’s trying to solve.

I’m not absolving private companies. They, along with politicians from both parties, played a part in putting our economy into recession. But nobody deserves more blame than government. And the idea that it’s going to ride to the rescue is ludicrous.

If you want to get a handle on the whole sordid mess — who did what, when and to whom — get a copy of Thomas Sowell’s latest book, “The Housing Boom and Bust.” He lays it out in only 148 pages. But I can tell you this: the seeds of the crisis were sown over 30 years ago with the passage of the Community Reinvestment Act and goosed along over the years with other questionable legislative manuevers.

In short, the federal government (under both parties) spent years touting an “ownership society” and telling lenders that they’d better put more minority loans into play — or else. You don’t want to be tarred as “racist,” right? Care to be prosecuted by Janet Reno’s Justice Department? And if certain minority clients don’t qualify the safe, traditional way (30 years, fixed), then find another way. Hello, no-money-down, interest-only ARMs.

Then — surprise, surprise — people start defaulting when their payments “adjust” through … well, the roof, and the whole house of cards comes tumbling down. We search for a scapegoat. Ah ha! Greedy lenders! It’s their fault!

If only it were that simple.

More and more economic historians now hold that FDR’s New Deal programs had little to do with ending the Great Depression. Indeed, they appear to have exacerbated it. Unfortunately, the same dynamic will likely play out today, with misguided government programs prolonging the very pain they’re meant to relieve.

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