SOWELL: The blame game

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By Thomas Sowell

COMMENTARY:

After virtually every disaster created by Beltway politicians, you can hear the sound of feet scurrying for cover in Washington, see fingers pointing in every direction away from Washington and watch all sorts of scapegoats being hauled up before congressional committees to be denounced on television for the disasters created by members of the committee who are lecturing them.

The word repeated endlessly in these political charades is "deregulation." The idea is that a lack of government supervision allowed private-sector "greed" to lead the nation into crises that only our Beltway saviors can solve.

What rubbish this all is can be found by checking the record of how government regulators were the ones who imposed lower mortgage-lending standards - and it was members of Congress (of both parties) who pushed the regulators to push the banks and the mortgage-buying giants Fannie Mae and Freddie Mac into accepting risky mortgages in the name of "affordable housing" and more homeownership. Presidents of both parties jumped on the bandwagon.

Most people don't have time to dig into the Congressional Record and other sources to find out the ugly truth being covered up by the blizzard of lies coming out of Washington and echoed in much of the media. But my research assistants do that for a living, and it is all presented in a just-published book of mine titled "The Housing Boom and Bust."

When the housing boom was going along merrily, Rep. Barney Frank, Massachusetts Democrat, was proud to be one of those pushing Fannie Mae and Freddie Mac into more adventurous financial practices in the name of "affordable housing."

In 2003, he said: "I believe that we, as the federal government, have probably done too little rather than too much to push them to meet the goals of affordable housing and to set reasonable goals." He added: "I want to roll the dice a little bit more in this situation toward subsidized housing."

In other words, when things were looking good, he was happy to acknowledge the role of the federal government in pushing the housing market in a direction it would not have taken on its own. However, after the risky mortgage-lending practices fostered by government intervention led to massive defaults and foreclosures, causing financial institutions to collapse or be bailed out, Mr. Frank completely changed his tune.

By 2007, his line was that "the subprime crisis demonstrates the serious negative economic and social consequences that result from too little regulation." By 2008, his line was that the financial crisis was caused by "bad decisions that were made by people in the private sector."

When television financial reporter Maria Bartiromo reminded Mr. Frank of his statements in earlier years, he simply denied making the statements she quoted and blamed "right-wing Republicans who took the position that regulation was always bad." Regulation is of course not always bad, and it would be hard to find anyone of any party who says it is. Moreover, Mr. Frank had some Republican collaborators in pushing regulators to push banks into risky mortgage lending.

As for the market, financial specialist Mark Zandi said plainly: "Lending money to American homebuyers had been one of the least risky and most profitable businesses a bank could engage in for nearly a century."

What changed that was not the market but politicians like Mr. Frank and his Senate counterpart Christopher Dodd, Connecticut Democrat, pushing the "affordable housing" crusade through government intervention, in disregard of the risks they were warned about repeatedly by people inside and outside of government.

Although this is the biggest housing disaster the government ever produced, it is by no means the first. Republicans intervened in the housing markets to promote more homeownership in the 1920s, Democrats in the 1930s and both parties after World War II. All these interventions led to massive foreclosures.

Don't politicians ever learn? Why should they? What they have learned all too well is how easy it is to get credit for promoting homeownership and how easy it is to escape blame for the foreclosures and other economic disasters that follow.

Thomas Sowell is a nationally syndicated columnist.