We’re on the wrong path
July 11, 2011
I want to commend your paper for publishing Melanie Sturm’s excellent column on July 7 pointing out that the recent financial crisis was actually caused by government intervention in the private housing market.
Not only does the new book “Reckless Endangerment,” by New York Times reporter Gretchen Morgenson, which Sturm cites in her column, make this point very convincingly, but much other research by leading think tanks such as the American Enterprise Institute (AEI) confirms this thesis beyond any reasonable doubt.
In a comprehensive paper dated April-May 2011, Peter J. Wallison of AEI says: “The weak and risky mortgage loans that eventually brought down the U.S .mortgage market and caused the financial crisis were the result of demand, not supply. Beginning with the affordable-housing requirements imposed on Fannie Mae and Freddie Mac in 1992, the U.S. government’s housing policy created artificial demand for subprime and other risky mortgages that had previously been shunned by most investors.”
Of course the leader of this aggressive program to allow all American’s to own their own home, whether they could afford it or not, was none other than Barney Frank and his Democratic colleagues. The irony, of course, is that Rep. Frank, along with Sen. Dodd (the recipient of a sweetheart mortgage), later emerged as the “fixers” of the cause of the crisis, and co-sponsored the Dodd-Frank Act (DFA). However, on that point, Wallison goes on to point out that because “a key tenant of the Left’s narrative about the financial crisis (is) the notion that securitizers were responsible for the low quality of the mortgages they distributed, (this) led the framers of DFA to focus their regulations on securitizers, rather than on the quality of the mortgages themselves.” He concludes that “if the purpose of the DFA were to impair the housing finance process, it would be difficult to think of a more efficient way to accomplish it.”
What is absolutely clear is that government intervention in the private sector is almost always a bad mistake, and what is really scary is that that type of intervention has reached an all-time high under the current administration – think housing, health care, the auto industry, the banks, and now, our largest exporter, Boeing.
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If the free market, capitalistic, entrepreneurial socioeconomic system on which this exceptional country was built and has very successfully grown, to the advantage of all income levels, is to survive, we need a major change in Washington in 2012. The alternative is the continued decline in the economy and the job market, the gradual conversion to a social welfare state a la France, and the status of an also ran nation on the world stage.
Dare I mention Greece?
Robert B. Hoffman