The financial crisis of 2008 had several causes but a root cause that contributed to all the other causes was the government’s insistence that banks loan money to people who could never pay it back. This ill-advised strategy to increase home ownership in America began as far back as 1977 with the Carter administration and one of its signature pieces of legislation called the Community Reinvestment Act (“CRA”).
The CRA was aimed at the process of home lending and did little damage until it was amended during the Clinton years to focus more on outcomes. This led to the govenrment pressuring and threatening financial institutions and banks to lower their lending standards and to make home loans to more people.
We all now know those policies led to other schemes to deal with the ill-effects of hundreds of thousands of mortgage foreclosures and finally the whole thing blew up and caused the so-called financial crises. The absolute best thing ever written about this mess is, in my view at least, Peter Wallison’s Hidden in Plain Sight: What Really Caused the World’s Worst Financial Crisis and Why It Could Happen Again.
The Obama administration has lately been taking a Mulligan on the same practices that Wallison writes about in his book, and is thereby laying the groundwork for it to happen again.
We can already see a harbinger of what will be the final result of all this government interference in the home loan and financial markets, American Nightmare: Home onwnership at 48-year low.
This is the classic example of left-wing policians implemeting a stupid policy that ultimately causes a huge problem and then offering more of the same as the cure.