Solving whose problem?
Politicians keep making the same mistakes
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? Actually, there
have been so many defaults that the FHA's own reserves have dropped below
where they are supposed to be. But not to worry: There will always be
taxpayers, not to mention future generations, to pay off the national
debt.
Very few people are likely to connect the dots back to those members of
Congress who voted for bigger mortgage guarantees and bailouts by the
FHA. So the congressmen's and the bureaucrats' jobs are safe, even if
millions of other people's jobs are not.
Mr. Frank is not about to cut back on risky mortgage loan guarantees by
the FHA. He recently announced that he plans to introduce legislation to
raise the limit on FHA loan guarantees even more. Mr. Frank will make
himself popular with people who get those loans and with banks that make
these high-risk loans so they can pocket the profits and pass the risk on
to the FHA.
So long as the taxpayers don't understand that all this political
generosity and compassion are at their expense, Mr. Frank is an odds-on
favorite to get re-elected. The man is not stupid.
What is stupid is believing that politicians are trying to solve our
problems instead of their own.
As for the FHA running low on money, that is not about to stop the gravy
train, certainly not with an election coming up in 2010. The Federal
Deposit Insurance Corporation is also running low on money. But that is
not going to stop it from insuring bank accounts up to a quarter of a
million dollars. It would be stupid for them to stop with an election
coming up in 2010.
Thomas Sowell is a senior fellow at the Hoover Institution at Stanford
University.
http://www.washingtontimes.com/news/2009/nov/28/solving-whose-problem/
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