Since some Goanetters have claimed that the financial crisis was caused by "greed" on Wall Street or by a lack of government regulation, this column by an eminent economist from Stanford University shows how it was government regulation intended to encourage low income home buyers that took a healthy American banking industry and turned it into a basket case.
http://www.jewishworldreview.com/cols/sowell021809b.php3 Selected Excerpts: What was lacking in the housing market, they say, was government regulation of the market's "greed." That makes great moral melodrama, but it turns the facts upside down. It was precisely government intervention which turned a thriving industry into a basket case. The Community Reinvestment Act of 1977 directed federal regulatory agencies to "encourage" banks and other lending institutions "to help meet the credit needs of the local communities in which they are chartered consistent with the safe and sound operation of such institutions." The real potential of that premise became apparent in the 1990s, when the Department of Housing and Urban Development (HUD) imposed a requirement that mortgage lenders demonstrate with hard data that they were meeting their responsibilities under the Community Reinvestment Act. Both HUD and the Department of Justice began bringing lawsuits against mortgage bakers when a higher percentage of minority applicants than white applicants were turned down for mortgage loans. Whites were turned down for mortgage loans more often than Asian Americans. But saying that would undermine the reasoning on which the whole moral melodrama and political crusades were based. Lawsuits were only part of the pressures put on lenders by government officials. Banks and other lenders are overseen by regulatory agencies and must go to those agencies for approval of many business decisions that other businesses make without needing anyone else's approval. Government regulators refused to approve such decisions when a lender was under investigation for not producing satisfactory statistics on loans to low-income people or minorities. Under growing pressures from both the Clinton administration and later the George W. Bush administration, banks began to lower their lending standards. [end of excerpts] As with any program in which the government intervenes with well-intentioned but economically flawed regulations, the house of cards eventually collapsed
