Thursday, May 12, 2011

Obama Administration Forcing Sub-Prime Lending (Again)

Remember what happened when the government forced banks to lend to people who couldn't afford mortgages (sub-prime lending) via the Community Reinvestment Act? Remember what happened when the government underwrote the loans through government sponsored enterprises (GSEs) such as Fannie and Freddie thus encouraging any and every bank and financial institution to directly and indirectly make mortgage loans to anyone with a pulse?  Remember what happened when the Fed kept interest rates too low by inflating the money supply which help caused home prices to explode thus fueling the illusion that homes were risk free "investments" that could only go up in price rather than a depreciating consumer good?  In short, remember how government intervention in the economy caused the housing crisis, a horrendous distorted mess that has wrought untold suffering and brought our economy to the brink of collapse? 

Well, the Fed is exploding the money supply - check. Fannie and Freddie are still underwrting loans (although standards have tightened) - check. And now, this news: the Obama administration is "cracking down" on banks in order to force them to lend to people who cannot afford loans - check. 

Yeah, that should work.

2 comments:

Robert said...

The most frustrating thing is... after all of these schemes fail, the blame will settle (or be fit to settle upon) those that are not to blame. I'm sure it will be the greedy banks that will get hit with more regulation in thge long run. Which, when you think about it, is perfect. That way we can implement new five-year-plans over and over Comrade. Do svidanyia!

Doug Reich said...

Robert,

Yes. The awful consequences of government intervention is never blamed on government intervention. It is only used to justify further regulation and intervention. Rinse and repeat.