Squaring the Culture

The following was published in the New York Times in September of 1999.
The emphasis is mine.

In a move that could help increase home ownership rates among minorities and low-income consumers, the Fannie Mae Corporation is easing the credit requirements on loans that it will purchase from banks and other lenders…

Fannie Mae, the nation’s biggest underwriter of home mortgages, has been under increasing pressure from the Clinton Administration to expand mortgage loans among low and moderate income people and felt pressure from stock holders to maintain its phenomenal growth in profits…

In moving, even tentatively, into this new area of lending, Fannie Mae is taking on significantly more risk, which may not pose any difficulties during flush economic times. But the government-subsidized corporation may run into trouble in an economic downturn, prompting a government rescue similar to that of the savings and loan industry in the 1980’s.

The article is off only in that Fannie Mae had already begun to loosen loan standards to marginal borrowers by 1995. This is apparently a growth and extension of that policy direction.

The Times predicted the current crisis 10 years ago, and predicted it accurately — based on the Clinton-era attempt to use the government to help marginal home buyers to obtain loans. It’s a noble-sounding enterprise, but it encourages bad economic decisions that have consequences for everybody.

By the way — the Bush administration took credit for the incredible rise in home ownership during its first few years. Apparently it was the Clinton administration that caused the increase in home ownership, and the Bush administration’s role was simply not to interfere. It now appears that we all would have been better off if they had interfered — only then, you see, he would have been blamed for decreased home ownership, and arguably could have lost the election in 2004. In this manner, a shallow electorate, unable to understand national economic issues and swayed by shallow analysis, creates incentives to perpetuate bad policy in order to protect incumbency. We should expect our elected representatives to sacrifice incumbency for sensible policy, but frequently they do not. The correct solution is better education for us all, so we’re not fooled by shallow analysis.

Hat tip to Hot Air for the find of the Times article.