Reason and Sanity

From CNSNews.com, we learn that the federal government, in all its wisdom, significantly contributed to the current economic and housing crisis.

Fannie Mae and Freddie Mac were the chief culprits in the housing crisis because they encouraged people who could not afford payments to borrow money.

This from a report from congress released on July 7th.

the report explains in detail how Fannie and Freddie "privatized their profits but socialized their risks.”

“In the short run, this government intervention was successful in its stated goal – raising the national homeownership rate,” says the report, the result of an investigation launched last fall by Republican members of the House Oversight and Government Reform Committee. 

“However, the ultimate effect was to create a mortgage tsunami that wrought devastation on the American people and economy,” says the report. “While government intervention was not the sole cause of the financial crisis, its role was significant and has received too little attention.”

The report talks about the Clinton administration’s National Homeownership Strategy, citing President Clinton’s directive to “lift America’s homeownership rate to an all-time high by the end of the century.”

The Clinton strategy further said that Freddie and Fannie should reduce down-payment requirements and, according to the report, “called for increased use of ‘flexible underwriting criteria,’ which it said could be achieved in concert with ‘liberalized affordable housing underwriting criteria.’”

“That is the perfect smoking gun that tells how Barney Frank [D-Mass.], the Clinton administration and others would do it in those days,” Rep. Darrell Issa (R-Calif.), the ranking member on the House Oversight and Government Affairs Committee, said Tuesday in a speech at the Heritage Foundation.

“The seeds of the meltdown began with the well-intentioned goal that everyone have a home even if they can’t afford it,” he said. “It led to one of the biggest ponzi schemes ever.”

Lending money to people who cannot pay you back is stupid.  Being forced to lend money to people who cannot pay you back is even more so.