More government oversight?
Recently the voices that calling for tighter control of the government on the market are much louder than usual. The crashing of investment banks and the threat of spreading the credit crisis into a full recession, along with massive tax money given as bailout to failing business, are among the reasons for such calls. But while many rushing to blame the risks of the free market, and the unreasonable greedy private sector, as a main reason to more government oversight - they are forgetting that the government had a major role in creating the credit crisis:
Eager to put more low-income and minority families into their own homes, the agency required that two government-chartered mortgage finance firms purchase far more “affordable” loans made to these borrowers. HUD stuck with an outdated policy that allowed Freddie Mac and Fannie Mae to count billions of dollars they invested in subprime loans as a public good that would foster affordable housing.
[...]
The agency neglected to examine whether borrowers could make the payments on the loans that Freddie and Fannie classified as affordable. From 2004 to 2006, the two purchased $434 billion in securities backed by subprime loans, creating a market for more such lending. Subprime loans are targeted toward borrowers with poor credit, and they generally carry higher interest rates than conventional loans.
[...]
In 1995, President Bill Clinton’s HUD agreed to let Fannie and Freddie get affordable-housing credit for buying subprime securities that included loans to low-income borrowers. The idea was that subprime lending benefited many borrowers who did not qualify for conventional loans. HUD expected that Freddie and Fannie would impose their high lending standards on subprime lenders.
So maybe instead of increasing government oversight we should do the opposite and simply reduce it?
Tags: Bailout, Credit Crisis, Sub Prime MortgageRelated posts
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On a happier note...I usually read your site through a reader and haven't been by in a while. I like the stuff you're posting on Flickr.
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