How Bad Public Policies Exacerbate Financial Bubbles

In an economic downturn, people consume less health care. [link]  That's not necessarily a bad thing, but it gives me an excuse to link to yesterday's Wall Street Journal editorial:

  • Fannie Mae and Freddie Mac were created by government to encourage loans that otherwise would not be made. They bought increasingly questionable mortgages to satisfy Congressional demands for "affordable housing."
  • The Consumer Reinvestment Act compels banks to make subprime loans to poor borrowers who often cannot repay them. (Note: Sen. Phil Gramm unsuccessfully fought against this!)
  • A Credit-Rating Oligopoly, created by federal and state regulation, delegates to a small handful of agencies the power to pass judgment on mortgage risks.
  • Banking Regulators have not vanished. In fact, the least regulated firms – hedge funds and private equity companies – have had the fewest problems.

Comments (3)

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  1. Joe S. says:

    Somebody needs to write a defense of Phil Gramm. I think he has actually been a hero in all of this.

  2. Richard Walker says:

    See this item in the NCPA's Daily Policy Digest: [here] Stan Liebowitz says the federal government's push for minority home ownership was the most important source of the mortgage meltdown.

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