The more I think about the Bush Administration’s proposed 700 billion dollar back bailout the madder I get. The “credit crisis” wasn’t created by by greed and mismanagement on Wall Street. It was created by politicians who thought they could substitute well intentioned politically correct regulation for sound financial practices.
Economist Stan Liebowitz has an excellent column on the anatomy of the credit crisis in Today’s New York Post:
HOW did America wind up in its worst financial crisis in decades? Sen. Barack Obama explained it this way last week: “When sub-prime-mortgage lending took a reckless and unsustainable turn, a patchwork of regulators systematically and deliberately eliminated the regulations protecting the American people.”
That’s exactly backward. Mortgage lending took that “reckless and unsustainable turn” because of regulation – regulation driven by liberals and progressives, not free-market “deregulators.”
Pushed hard by politicians and community activists, the regulators systematically and deliberately altered financially sound lending practices.
The mortgage market was humming along just fine when, in the late 1980s, progressives decided that it needed to be “fixed.” Their complaint: Some ethnic groups got approved for mortgages at lower rates than others.
In reality, mortgage lenders were simply being prudent – taking care to provide mortgages to those who could best afford to make the payments.
The shift began in 1989, when Congress amended the Home Mortgage Disclosure Act to force banks to collect racial data on mortgage applicants. By 1991, critics were using that data to paint lenders as racist by showing that minority applicants were approved at far lower rates. Banks were “Shamed By Publicity,” as one 1993 New York Times headline put it.
Unfortunately, as much as I hate the idea, we’ve reached the point where a bailout is probably necessary evil… I’m not so much opposed to the idea of bailout as I am opposed to the idea of bailout without repealing the foolish regulations that created the problem. It’s time Congress owned up to to their role in the mess and tossed out the policies that helped create this mess!