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.

http://www.nationalreview.com/redire...p?j=0465018807

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.

http://www.tsowell.com
http://townhall.com/Columnists/ThomasSowell/
__________________________________________________ _

Housing Boom and Bust
The same discredited assumptions and the same disregard of
repercussions.

By Thomas Sowell


EDITOR’S NOTE: The following is adapted from Thomas Sowell’s new book,
The Housing Boom and Bust.

Let us go back to square one to consider the empirical consequences of
policies in the housing market. Politicians in Washington set out to
solve a national problem that did not exist — a nationwide shortage of
“affordable housing” — and have now left us with a problem whose
existence is as undeniable as it is painful. When the political
crusade for affordable housing took off and built up steam during the
1990s, the share of their incomes that Americans were spending on
housing in 1998 was 17 percent, compared to 30 percent in the early
1980s. Even during the housing boom of 2005, the median home took just
22 percent of the median American income.

What created the illusion of a nationwide problem was that, in
particular localities around the country, housing prices had
skyrocketed to the point where people had to pay half their income to
buy a modest-sized home and often resorted to very risky ways of
financing the purchase. In Tucson, for example, “roughly 60% of first-
time home buyers make no down payment and instead now use 100%
financing to get into the market,” according to the Wall Street
Journal. Almost invariably, these locally extreme housing prices have
been a result of local political crusades in the name of locally
attractive slogans about the environment, open space, “smart growth,”
or whatever other phrases had political resonance at the particular
time and place.

Where housing markets have been more or less left alone — in places
like Houston or Dallas, for example — housing did not take even half
as big a share of family incomes as did comparable housing in places
like the San Francisco Bay Area, where heavily hyped political
crusades had led to severe restrictions on building. It was in
precisely these extremely high housing-cost enclaves that the kind of
people for whom the national housing crusade expressed much concern —
minorities, low-income people and families with children — were forced
out disproportionately.

Few things blind human beings to the actual consequences of what they
are doing like a heady feeling of self-righteousness during a crusade
to smite the wicked and rescue the downtrodden. Statistical studies
about disparities between blacks and whites in mortgage loan approval
rates might be said to have “jump-started” the housing crusades that
began in the 1990s. Politicians and the media led this crusade, with
many community activists following in their wake, much like
scavengers, able to extract large sums of money from banks and other
institutions by raising claims of discrimination, whose power to delay
government approval of bank mergers and other business decisions made
pay-offs to these activists the only prudent course for those accused.

Even where loudly proclaimed concern for the poor and minorities gave
impetus to the drive for over-riding traditional mortgage lending
standards, this is not to say that the poor and minorities were the
sole beneficiaries or even the main beneficiaries. When you open the
floodgates, you cannot tell the water where to go. Housing speculators
— “flippers” — found the new and looser home mortgage rules a bonanza.
So did many others. It is by no means clear that the poor or
minorities came out ahead at all, after the housing boom turned to
bust and many were left with mortgage payments they couldn’t meet on
homes they couldn’t afford.

With rich rewards available — politically, ideologically, and
financially — from the “affordable housing” crusade, there were ample
incentives to keep this crusade going for years. Meanwhile, various
special interests found ways to benefit themselves from all this,
whether as home builders, real-estate investors, or others, and
therefore added their voices in support of the open-ended goal of more
home ownership through various ways of achieving, or seeming to
achieve, affordable housing. Supporters of such policies and programs
easily drowned out the voices of those economists and others who
increasingly warned of the risky financial arrangements that were
behind the statistics on the growing numbers of home buyers that were
so triumphantly being paraded as fruits of the crusade for affordable
housing and the stamping out of mortgage lending discrimination.

In short, this was a crusade that was feeding on its own successes by
its own criteria, and was not likely to stop unless it got stopped.


The housing market collapse dealt a blow to some of the devices that
fed the crusade — “creative” financing and lax lending standards, for
example — but even the ensuing national crisis did nothing to end the
political attractiveness of the goal of making housing affordable by
government fiat, rather than by individuals buying or renting housing
that was within their own income range. Just as the utter discrediting
of public housing projects did not discredit the underlying beliefs
that caused such projects to be built, so in this case even the more
widely disastrous consequences of the affordable-housing crusade have
led only to seeking other ways of carrying on that same crusade, based
on the same discredited assumptions and the same disregard of
repercussions.

While some congressional Democrats have proposed a moratorium on
mortgage foreclosures or allowing judges to change the terms of
mortgage contracts, Senate Republicans have proposed “providing
government-backed, 4% fixed mortgages to any credit-worthy borrower.”
What these proposals from politicians of both parties all have in
common is an utter absence of any serious consideration of the
repercussions in multiple directions of arbitrary government fiats.

Anyone who expected any such consideration of repercussions by most
members of either political party would have little chance of avoiding
painful disappointments. Certainly few politicians of either party
have questioned whether the track record of politicians in the housing
market justified more of the same in other markets. Many are in fact
eager to extend political intervention into other industries receiving
the government “stimulus” or bailout money.

Before we go forward as a nation, it is well to look at where we have
been, despite being urged to take drastic actions immediately — and,
in fact, especially when being urged to take drastic actions
immediately.

Whether we look at the American economy in general or the housing
market in particular, we see a history of remarkable progress for
generation after generation — and a few recent years when things
turned very bad, very quickly.

It has been almost axiomatic, for at least a century, that the
American economy produces more output than any other economy in the
world. All this is so much taken for granted that no one considers it
worth commenting on the fact that 300 million Americans today produce
more output than more than a billion people in India or an even larger
population in China — indeed, more than these two countries which, put
together, have more than eight times the population of the United
States. We also produce more than Japan, Germany, Britain, and France
combined.

The housing market has, of course, changed drastically in the past few
years, as have other things in the economy. But does all this suggest
that (1) we need to change some recent bad policies or that (2) we
need to restructure a whole economic system that has worked well for
centuries? More specifically, does it mean that we need to allow
politicians a bigger say in how American businesses are run?

Lenders did not spontaneously begin to lend to people who would not
have qualified for loans under the traditional criteria that had
evolved out of years of experience in the market. Such risky loans
were made under growing pressures from government regulatory agencies
and politicians, and even threats of prosecution from the Justice
Department if the statistical profiles of borrowers whose loan
applications were approved did not match the government’s
preconceptions.

The growth in subprime loans was one way of meeting arbitrary quotas
for lending to people who did not meet the criteria for loan approval
that had prevailed for years. Quota lending was one of many political
patches put over problems caused by previous political “solutions.”
Often these interventions have focussed on some limited goal, with no
real concern about, or even awareness of, the wider ramifications of
what they were doing. It is doubtful whether most of the state
politicians of the past who enacted laws to prevent branch banking had
anything in mind more far-reaching than enabling local banks to avoid
having to compete with branches of much bigger and better-known banks.
It seems even less likely that these local politicians felt any
responsibility for the thousands of bank failures during the Great
Depression of the 1930s.


Nor is it likely that the national politicians of our own times, who
for years made “home ownership” the touchstone of housing policy, will
acknowledge any responsibility for the financial disasters and
widespread unemployment today.

What that means is that the voting public must at a minimum be
skeptical of political spin, no matter how often it is echoed in the
media. What would be even better would be to develop some sense of
awareness that everything “is interconnected in the world of prices,
so that the smallest change in one element is passed along the chain
to millions of others.” It is a caution especially apt when someone is
pushing the political crusade of the day as an overriding “good
thing,” whether home ownership, mortgage foreclosure mitigation, or a
restructuring of the whole economy.

The very idea that the current economic crisis will go to “waste” if
it is not used by politicians to rush through a fundamental
restructuring of the economy, while the public is too panicked to
object, should at the very least give us pause, if not set off alarm
bells. From the standpoint of those who seek to remake the economic
institutions of America, the worst case scenario would be to have the
economy begin visibly recovering on its own before they can get their
blueprint for salvation enacted into law. The urgency behind the hasty
passage of the “stimulus” legislation was real, even if the reason for
that haste was not a swift economic recovery.

Will the history of the New Deal and the Great Depression repeat
itself? There is, of course, no way to know in advance. However,
history has repeated itself many times before, when past experience
has been ignored — and especially when past mistakes have been
repeated, often in the name of doing something new and different.
Comments made years ago by distinguished British historian Paul
Johnson remain very apt in our times:

The study of history is a powerful antidote to contemporary arrogance.
It is humbling to discover how many of our glib assumptions, which
seem to us novel and plausible, have been tested before, not once but
many times and in innumerable guises; and discovered to be, at great
human cost, wholly false.

— Thomas Sowell is a syndicated columnist and a scholar in residence
at the Hoover Institution. This is adapted from his new book, The
Housing Boom and Bust.

— Thomas Sowell is a senior fellow at the Hoover Institution.

http://article.nationalreview.com/?q...ZiZThmN2UwNTg=

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