Tuesday, September 16, 2008
Check this out. Pretty shocking claim. IBD says the root cause of the mortgage meltdown/subprime crisis, from which the rest of this financial crisis flows, was the Clinton era policy (continued, I have no doubt in the W years) of requiring banks to lend money to low income households, as part of a big social policy.
This is a very interesting claim, and could even be true. When the dust settles, I hope some financial economists dig into it.
I couldn't agree more that Obama's "see, see! The free market doesn't work!" response is both stupid and alarming. With humongous entities like Fannie and Fred shaping the markets and credit markets generally regulated every which way, you can hardly say this is a failure of free markets. One fact worth remembering is that -- how much? most? almost all? -- of the market for bad housing loans would not have existed at all but for implicit federal guarantees. Without that, there probably would not have been this mess. Starting with rotten loans as assets and levering them out astonishing degrees -- OK, that seems to have been the contribution of free wheelin' private institutions, which are now paying the price. The rest of us will end up paying plenty as well.