Thomas Sowell: Regulators Started Housing Crisis

newsmax.com ^ | May 17, 2009 | Thomas Sowell

[kellynla]

Respected economist Dr. Thomas Sowell, author of the new book "The Housing Boom and Bust," tells Newsmax that the current housing crisis can be blamed on pressure from government officials seeking to remedy a "problem that didn't exist."

Dr. Sowell also said politicians' stated concern about that so-called problem — a lack of affordable housing — is "a farce."

Newsmax.TV's Kathleen Walter asked Sowell what caused the "house of cards" in the housing market to collapse.

"The most fundamental thing is that the money that was normally paid for monthly housing payments stopped coming in, or stopped coming in in the volumes that it had in the past," said Sowell, a senior fellow at the Hoover Institution at Stanford University.

"The question then is, why did that happen? And the reason that happened was that banks and other lending institutions began lending to people who did not meet the traditional standards for mortgage loans, but were given those loans under pressure from government regulators, and even in some cases under threats from the Department of Justice if their statistics didn't match what the Department of Justice thought they should be — for example, in terms of income levels, race, what communities they invested in, and so on."

Walter noted that Sowell asserts in his book that politicians in Washington were trying to solve a problem that didn't exist.

"The problem that didn't exist was a national problem of unaffordable housing," Sowell explained.

"The housing in particular areas, particularly coastal California and some other areas around the country, were just astronomically high. It was not uncommon for people to have to pay half of their family income just to put a roof over their head. So that was a very serious problem where it existed.

[kellynla]

"When you realize how long politicians have been talking about a need for affordable housing, you realize what a farce it is."

[Puddleglum]

bookmark

[Gay State Conservative]

Yup,that’s what started this huge snowball rolling in the first place.RATS forcing lenders to give loans to people who never would have qualified under long established lending rules....20% down....income to debt ratio at a certain maximum....good credit record....

[Jeff Chandler]

The Republicans should have been shouting this from the rooftops from the beginning of the crisis. Instead, Sen. McCain joined the Democrats in blaming capitalism itself. My Friend™.

[Oldeconomybuyer]

"So they [lawmakers] set out to solve the problem by setting up a federal program to bring down the mortgage requirements, the 20 percent down payment and that sort of thing, and by forcing Fannie Mae and Freddie Mac to buy up those mortgages from the people who no longer had to meet the same requirements.

"The banks had no choice but to go along because the regulators controlled their fate. So the banks would simply sign up people, sell the mortgages to Fannie Mae and Freddie Mac. It now became Fannie Mae and Freddie Mac's problem. And that meant it became the taxpayers' problem."

[mc5cents]

seeking to remedy a "problem that didn't exist."

Hmmm. Seems to be virus. See: Global Warming/Climate Change for example.

[Uri’el-2012]

"Ninja Loans"

No Income, No Job or Assets.

[jessduntno]

“Walter noted that Sowell asserts in his book that politicians in Washington were trying to solve a problem that didn’t exist.”

Next up - global warming...

[hoosierham]

The most desirable locations and houses sell for the most money,so many will never have the house they desire.Of course many will never have the (fill in this blank)they desire,therefore it is the job of the government to force other people to accommodate those desires.

But then that causes those forced to not attain their desires...

Maybe government should stay out of our lives as much as possible?

[jazusamo]

6 1/2 minute video of Kathleen Walter phone interview of Dr. Thomas Sowell.

*PING*
Thomas Sowell

Recent columns
The Blame Game
Talking Points
“Empathy“ Versus Law: Part IV

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[rockinqsranch]

Thanks for the ping jaz.

[central_va]

I thought it menat “No Income, No Job - Approved.

[Uri’el-2012]

That Too !

[Las Vegas Ron]

Ya know, if zer0 really wanted to fix this economy he would consider consulting people like Sowell and Williams

I know, I know, just sayin

[GOPJ]

...banks and other lending institutions began lending to people who did not meet the traditional standards for mortgage loans, but were given those loans under pressure from government regulators, and even in some cases under threats from the Department of Justice if their statistics didn't match what the Department of Justice thought they should be...

The road to hell is paved with good intentions - once again, Sowell had identified those perverse intentions. Government regulators need to study the concept on "unintended consequences" - Sowell can give them the necessary lessons.

[razorback-bert]

There is not the slightest incentive for politicians to learn from their mistakes because they pay no price for it.

We need to make them pay and pay.

[SuziQ]

Respected economist Dr. Thomas Sowell, author of the new book "The Housing Boom and Bust," tells Newsmax that the current housing crisis can be blamed on pressure from government officials seeking to remedy a "problem that didn't exist."

LOL! In Dr. Sowell's wonderful book "Visions of the Annointed", he goes through several government "fixes" to problems that didn't exist, including the problem of 'rising numbers of pregnant teenagers', signaling the need for comprehensive sex education, even though, at the time, there were not that many teenage pregnancies. That only occurred AFTER the sex education programs were instituted.

[SuziQ]

RATS forcing lenders to give loans to people who never would have qualified under long established lending rules....20% down....income to debt ratio at a certain maximum....good credit record....

Oh, there were programs for folks who didn't have the 20% down. I worked in an S&L that regularly did FHA and VA loans with only 5% down. But those folks had to qualify in all other ways with sufficient income and good credit. The big difference is that in order to sell those loans on the secondary market, the S&L had to provide GOOD evidence of the quality of those loans.

When Fannie Mae and Freddie Mac started letting things slide, mortgage brokers and others jumped on that and pushed loans to people who clearly could NOT afford to own and keep up a home.

[Max in Utah]

"Ya know, if zer0 really wanted to fix this economy he would consider consulting people like Sowell and Williams"

You mean, people with education, intelligence, common sense and the wisdom of years of accumulated experience to guide them?

Nah, never happen.

[adorno]

Yup,that’s what started this huge snowball rolling in the first place.RATS forcing lenders to give loans to people who never would have qualified under long established lending rules....20% down....income to debt ratio at a certain maximum....good credit record....

This was, at the same time, a scheme for the "poor" and less well-off to "share in the wealth". Many people were lured into bad loans by the low government mandated rates and low down-payments, thinking that it was a way for them to make a killing while the real-estate market was booming. Many were hopeful that their properties would quickly rise in value and they then could sell after a short time of holding on to the "purchased" properties. However, many of them became trapped with homes they couldn't afford and couldn't unload.

The whole thing proved to be unsustainable and, it was all a democratic party scheme to appear to be helping. The exact opposite is the result and the little poor people are the ones paying a higher cost for the democrats intervention in the free markets. Some people would call what happened as an unintended consequence, but I'm pretty sure that the democrats knew that their "good intentions" are all that the voters would pay attention to.