by Thomas Sowell
You can’t really understand politics until you understand that politicians are not trying to solve our problems. They are trying to solve their own problems – of which getting elected and re-elected are No. 1 and No. 2, respectively. Whatever is No. 3 is far behind.
Many of the things the government does that may seem stupid are not stupid at all, from the standpoint of the elected officials or bureaucrats who do these things.
The current economic downturn that has cost millions of people their jobs began with successive administrations of both parties pushing banks and other lenders to make mortgage loans to people whose incomes, credit history and inability or unwillingness to make a substantial down payment on a house made them bad risks.
Was that stupid? Not at all. The money that was being put at risk was not the politicians’ money, and in most cases was not even the government’s money. Moreover, the jobs that are being lost by the millions are not the politicians’ jobs – and jobs in the government’s bureaucracies are increasing.
No one pushed these reckless mortgage lending policies more than Rep. Barney Frank, Massachusetts Democrat, who brushed aside warnings about risk and said in 2003 that he wanted to “roll the dice” even more in the housing markets. But it would very rash to bet against Mr. Frank’s getting re-elected in 2010.
After the cascade of economic disasters that began in the housing markets in 2006 and spread into the financial markets on Wall Street and even overseas, people in the private sector pulled back. Banks stopped making so many risky loans. Homebuyers began buying homes they could afford, instead of going out on a limb with “creative” – and risky – financing schemes to buy houses that were beyond their means.
But politicians went directly in the opposite direction. In the name of “rescuing” the housing market, Congress passed laws enabling the Federal Housing Administration to insure more and bigger risky loans – loans where there is less than a 4 percent down payment.
A recent news story told of three young men who chipped in a total of $33,000 to buy a home in San Francisco that cost nearly a million dollars. Why would a bank lend that kind of money to them on such a small down payment? Because the loan was insured by the Federal Housing Administration.
The bank wasn’t taking any risk. If the three guys defaulted, the bank could always collect the money from the FHA. The only risk was to the taxpayers.
Does the FHA have unlimited money to bail out bad loans?
Read the rest at the Washington Times by clicking here.