The Government Did It (caused this financial crisis/ bailout)

In his 7-18-08 report The Government Did It by Yaron Brook he explains how it was more the fault of Congress than any lending institution:

The CRA (Community Reinvestment Act, 1979, under Jimmy Carter) forces banks to make loans in poor communities, loans that banks may otherwise reject as financially unsound. Under the CRA, banks must convince a set of bureaucracies that they are not engaging in discrimination, a charge that the act encourages any CRA-recognized community group to bring forward. Otherwise, any merger or expansion the banks attempt will likely be denied. But what counts as discrimination?

Banks were penalized for being too restrictive in their loan applicant screening practices:

According to one enforcement agency, "discrimination exists when a lender's underwriting policies contain arbitrary or outdated criteria that effectively disqualify many urban or lower-income minority applicants." Note that these "arbitrary or outdated criteria" include most of the essentials of responsible lending: income level, income verification, credit history and savings history--the very factors lenders are now being criticized for ignoring.

This is how the government backed agencies Fannie Mae and Freddie Mac contributed to the problem:

The government has promoted bad loans not just through the stick of the CRA but through the carrot of Fannie Mae and Freddie Mac, which purchase, securitize and guarantee loans made by lenders and whose debt is itself implicitly guaranteed by the federal government. This setup created an easy, artificial profit opportunity for lenders to wrap up bundles of subprime loans and sell them to a government-backed buyer whose primary mandate was to "promote homeownership," not to apply sound lending standards.

The problem is too much government regulation rather than lack of:

We do not need more regulation or economic "steering"--laws or bureaucrats dictating to financiers and investors the kind of innovation they may or may not engage in. If that were the solution to economic problems, then Hugo Chavez would preside over the world's healthiest economy in Venezuela. What we need to do is remove the government's power to coerce, bribe, reward and bail out irrational decisions. The unfree market has failed. It's time for a truly free market.

So when you hear Obama, Dods or Frank calling for more Government Regulation to solve the problem, remind them that it was their regulations that caused our present crisis! BTW the cost of the Bailout more than likely will be much more than the cost to date of the Iraque war! Makes you wonder why all the Democrats are behind the Bailout doesn't it!

[edit on 28/9/08 by plumranch]

come on now, don't blame the Government

They are but puppets

Blame Their Masters, "follow the money"

Textcome on now, don't blame the Government

reply to post by tsEnigma


I blame the government. And specifically I blame Jimmy Carter, Bill Clinton, Barney Franks and Chris Dodds for implanting a program waistings billions and probably trillions in the name of political correctness. Ie. putting unqualified buyers into loans for housing. Pretty simple. It was the mistake of Jimmy Carter etc. not our Overlords. No reason to make it more complicated.

Thanks for your post! ..P.