"The ultimate result of shielding men from the effects of folly is to fill the world with fools." -- Herbert Spencer
GMU Professor
Walter Williams on the current financial fiasco:
How many times have we heard politicians, pundits and guardians of our news media say President Bush cut taxes, or Barack Obama is going to raise taxes? The fact is that presidents have no power to raise or lower taxes. They can propose tax measures or veto them but Congress has the ultimate power to raise or lower taxes since they can, with a two-thirds vote, override a presidential veto. The same principle applies to spending.
Presidents cannot be held responsible for budget deficits or surpluses. A president cannot spend a dime that Congress does not first appropriate. Given these plain facts, are politicians, pundits and media people - who persist in talking about a president cutting or raising taxes, or creating a budget deficit - ignorant, stupid or deceptive?
Many politicians and pundits claim the credit crunch and high mortgage foreclosure rate is an example of market failure and want government to step in to bail out creditors and borrowers at the expense of taxpayers who prudently managed their affairs.
These financial problems are not market failures but government failure. The Community Reinvestment Act of 1977 is a federal law that intimidated lenders into offering credit throughout their entire market and discouraged them from restricting their credit services to low-risk markets, a practice sometimes called redlining. The Federal Reserve, keeping interest rates artificially low, gave buyers and builders incentive to buy and build, producing the housing bubble.
The credit crunch and foreclosure problems are failures of government policy. In fact, what we see now is a market correction to foolhardy government policy. Congress' move to bail out lenders and borrowers who made poor decisions will simply create incentives for people to make unwise decisions in the future.
Read the whole thing.
GMU Professor Walter Williams on the current financial fiasco:
1 comment:
What a load of crock to blame any part of this on the CRA.
First, there's the timing. CRA came in 1977. The crisis came in 2007. Indeed, by 2004, the Bush administration had weakened the CRA -- and after that (though not, presumably, because of it), bubble lending really took off.
Further, CRA only governs a certain class of federally insured banks. Problem is, half of the subprime loans came from mortgage companies with no CRA involvement at all. Another 25%-30% came from companies with very little CRA exposure. For those who left their abacus at home, that's 80% of the loans which were fully or largely outside CRA jurisdiction.
The most dangerous lending was made precisely by those entities not subject to the CRA. Janet Yellen, president of the San Francisco Federal Reserve, notes that independent mortgage companies made subprime loans at twice the rate of banks and thrifts. In fact, Yellen notes that CRA has been a force of moderation at the same time as increasing responsible lending to low- and moderate-income households.
The CRA is a nice convenient scapegoat for those who want to keep living, Goundhog Day style, in 1981– getting to attack government regulation and social policy that benefits minorities at the same time. Except that the argument is simply wrong. This is 2008. The villain here is the unfettered free market.
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