Financial crisis sends wrong message
It seems that the wrong narrative is being written about the current financial situation in this country. Politicians like Barney Frank and Chris Dodd benefited from a housing system with too much government meddling. Now, these same politicians are pointing their fingers at the free market, claiming that it is the true cause of the housing problems that led to broader financial troubles.
This is the wrong lesson to be learned. The housing market was not a free market. Fannie Mae and Freddie Mac were so-called “government sponsored enterprises” or GSE’s. Such a hybrid was doomed to fail eventually, especially given the perverse incentives for politicians and lobbyists to abuse and exploit the situation.
Chris Dodd’s sweetheart loan from Countrywide as part of the “friends of Angelo” program, as well as his huge campaign contributions from Fannie and Freddie, were just the tip of the iceberg. The government’s collusion with corrupt CEO’s like Franklin Raines (who was a big Obama adviser until recently) led to the downfall and subsequent taxpayer bailout of Fannie and Freddie. Now, liberal politicians are clamoring that there needs to be more regulation, and that our financial troubles are due to an over-reliance on the market.
I hope that the American people see through the rhetoric. While many Republicans, like John McCain, were calling for greater oversight over the GSE’s, most Democrats were outraged by the suggestion. But this matter is larger than partisan bickering. I fear that too many people will see our current financial situation as a product of a failure of free markets, while the truth is that the housing market was not really free to begin with.
In the future, let’s hope that the American people remember the last time the government stuck its nose into the business of allocating scarce resources, like housing. I am somewhat doubtful that the lesson will be learned. As Thomas Sowell points out in his book Basic Economics the same foolish economic policies seem to be repeated by politicians over and over again.