Economics

GOP debate educates public on how housing caused the financial crisis

In last night’s Republican debate, every Republican presidential candidate who was called on to discuss the condition of the housing market made the point that the financial crisis—and the current deplorable state of U.S. housing—resulted from the government’s housing policies, and that the government-sponsored enterprises Fannie Mae and Freddie Mac were at the center of this government-caused disaster.

This recognition is a major step forward. Since the financial crisis of 2008, the Left has pushed the narrative that the private sector, particularly the banking system, was responsible for the crisis. Once this idea was accepted—and the main stream media accepted and propagated it immediately—greater regulation of the financial system was a foregone conclusion. The result was the Dodd-Frank Act, which has been one of the principal reasons that the U.S. economy has recovered so slowly from the deep recession that followed the financial crisis.

Once policy makers understand that government housing policies caused the financial crisis, we are on the path to recovery. The Dodd-Frank Act can be repealed because it is destructive, costly to the private sector, and not directed at the causes of the crisis. For that reason, it cannot possibly prevent a future crisis. In addition, we can eliminate Fannie and Freddie over time, replacing them with an efficient private-sector system for housing finance—based on prime mortgages—that will deliver sufficient financing for homes, eliminate the distortions caused by government interventions, and contribute to the stability of the U.S. financial system in the future.

One thought on “GOP debate educates public on how housing caused the financial crisis

  1. There’s nothing wrong with lending poor people money to buy houses. Habitat for Humanity does that every day and their default rate is 2 percent.

    The key to their almost nonexistent default rate is that they EDUCATE their mortgage holders — who have very low-paying jobs — on how to manage their resources so they can pay the mortgage and still eat.

    What they don’t do is use artificially low teaser rates to lure people into buying something they can’t afford through exotic mortgages.
    And they don’t take a commission, pass the loan off onto someone else, and run.
    And they don’t rebundle the mortgages into phony-baloney securities tranches.
    And they don’t collude with ratings agencies for AAA ratings on debt instruments that should be rated much lower.

    But other than those things, the financial sector is blameless.

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