If you haven’t read Dennis Sewell's recent Spectator article on the financial crisis yet, you should. It makes a very compelling case that big government, far from being our saviour, is at the root of the current situation. To digest his argument:
- Roberta Achtenberg, President Clinton's Assistant Secretary for Fair Housing and Equal Opportunity at the Department of Housing and Urban Development (HUD), believed that racism was preventing minorities enjoying the same level of home ownership as whites.
- She set up a network to bring lawsuits against any mortgage bank suspected of practising unlawful discrimination. When HUD's investigators couldn't find any overt racism they tried to prove ‘disparate treatment’ of minority groups instead. When that didn't work, they went after ‘disparate impact’.
- The mortgage banks got the message. In contrast to previously conservative lending practices, "Mortgages were offered with only 3 per cent deposit requirements, and eventually with no deposit requirement at all. The mortgage banks fell over one another to provide loans to low-income households..." Now these banks are responsible for more than three-quarters of dodgy subprime loans.
- Meanwhile, national banks were put under a different kind of pressure: "Changes were made to the Community Reinvestment Act to establish a system by which banks were rated according to how much lending they did in low-income neighbourhoods. A good CRA rating was necessary if a bank wanted to get regulators to sign off on mergers, expansions, even new branch openings." At the same time, Congress backed Fannie Mae and Freddie Mac to expand mortgage loans among low earners, and introduced new rules let them securitize subprime loans.
Smoking gun, anyone?