After virtually every disaster created by Beltway politicians you can hear the sound of feet scurrying for cover in Washington, see fingers pointing in every direction away from Washington, and watch all sorts of scapegoats hauled up before Congressional committees to be denounced on television for the disasters created by members of the committee who are lecturing them.
The word repeated endlessly in these political charades is “deregulation.” The idea is that it was a lack of government supervision which allowed “greed” in the private sector to lead the nation into crises that only our Beltway saviors can solve.
What utter rubbish this all is can be found by checking the record of how government regulators were precisely the ones who imposed lower mortgage lending standards– and it was members of Congress (of both parties) and who pushed the regulators, the banks and the mortgage-buying giants Fannie Mae and Freddie Mac into accepting risky mortgages, in the name of “affordable housing” and more home ownership. Presidents of both parties also jumped on the bandwagon.
Most people don’t have time to spend digging into the Congressional Record and other sources to find out the ugly truth being covered up by the blizzard of lies coming out of Washington and echoed in much of the media. But my research assistants do that for a living, and it is all presented in a book of mine titled “The Housing Boom and Bust” that has just been published.
When the housing boom was going along merrily, Congressman Barney Frank was proud to be one of those who were pushing Fannie Mae and Freddie Mac into more adventurous financial practices, in the name of “affordable housing.”
In 2003 he said: “I believe that we, as the Federal Government, have probably done too little rather than too much to push them to meet the goals of affordable housing and to set reasonable goals.” He added: “I want to roll the dice a little bit more in this situation towards subsidized housing.”
In other words, when things were looking good, he was happy to acknowledge the role of the federal government in pushing the housing market in a direction it would not have taken on its own. But, after the risky mortgage-lending practices fostered by government intervention led to massive defaults and foreclosures that caused financial institutions to collapse or be bailed out, Congressman Frank changed his tune completely.
By 2007, his line was now that “the subprime crisis demonstrates the serious negative economic and social consequences that result from too little regulation.” By 2008, his line was that the financial crisis was caused by “bad decisions that were made by people in the private sector.”
When television financial reporter Maria Bartiromo reminded Congressman Frank of his statements in earlier years, he simply denied making the statements she quoted and blamed “right-wing Republicans who took the position that regulation was always bad.”
Regulation is of course not always bad, and it would be hard to find anyone of any party who says that it is. Moreover, Congressman Frank had some Republican collaborators in pushing regulators to push banks into risky mortgage lending.
As for the market, financial market specialist Mark Zandi put it very plainly: “Lending money to American homebuyers had been one of the least risky and most profitable businesses a bank could engage in for nearly a century.”
What changed that was not the market but politicians like Barney Frank and his Senate counterpart Christopher Dodd, pushing the “affordable housing” crusade through government intervention, in disregard of the risks that they were repeatedly warned about by people inside and outside of government.
Although this is the biggest housing disaster the government has ever produced, it is by no means the first. Republicans intervened in the housing markets to promote more home ownership in the 1920s, Democrats in the 1930s and both parties after World War II. All of these interventions led to massive foreclosures.
Don’t politicians ever learn? Why should they? What they have learned all too well is how easy it is to get credit for promoting home ownership and how easy it is to escape blame for the later foreclosures and other economic disasters that follow.