Thomas Sowell
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In the spirit of bipartisanship, my newest book-- "The Housing Boom and Bust"-- shows how both Democrats and Republicans ruined both the housing markets and the financial markets.

Like so many disasters, the current economic crisis grew out of policies based on good intentions and mushy thinking.

For far too long, too many people have regarded home ownership as "a good thing." It is certainly true that home ownership has its benefits. But, like everything else, it also has its costs and its risks.

Weighing such trade-offs is something that each individual and each family can do for themselves. It is when such decisions are made by politicians-- of whatever party-- that trade-offs tend to vanish into thin air, replaced by pursuit of a "good thing."

Beginning in the 1990s, getting a higher proportion of the American population to become homeowners became the political holy grail of government housing policies. Increasing home ownership among minorities and other people of low or moderate incomes was also part of this political crusade.

Because banks are regulated by various agencies of the federal government, it was easy to pressure them to lend to people that they would not otherwise lend to-- namely, people with lower incomes, poorer credit ratings and little or no money for a conventional down payment of 20 percent of the price of a house.

Such people were referred to politically as "the underserved population"-- as if politicians know who should and who shouldn't get mortgages better than people who have spent their careers making mortgage-lending decisions.

But, in politics, power trumps knowledge. Banks whose mortgage loan approval rates for "the underserved population" did not match the prevailing preconceptions found that they could not get government regulatory agencies to approve their business decisions on opening new branches or enlarging their financial operations, the way competing banks did when those competing banks met the lending quotas set by the government.

If meeting those quotas required lowering the standards for granting mortgage loans, that was often considered a lesser evil than having government regulators stalling or vetoing the business decisions necessary for competing in the financial markets.

While Democrats spearheaded this crusade, Republicans joined in as well. The George W. Bush administration, for example, urged Congress to pass the American Dream Downpayment Initiative, which subsidized the down payments of prospective home buyers whose incomes were below a certain level.

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Thomas Sowell

Thomas Sowell is a senior fellow at the Hoover Institute and author of The Housing Boom and Bust.

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