Thomas Sowell

Politics takes a lot of brass. And Bill Clinton is a master politician. His rousing speech at the Democrats' convention told the delegates that Republicans "want to go back to the same old policies that got us into trouble in the first place."

That is world class brass. Bill Clinton's own administration, more than any other, promoted an unsustainable housing boom, which eventually and inevitably led to a housing bust that brought down the whole American economy.

Behind all the complex financial processes that reached to Wall Street and beyond, there is one fundamental fact: many people stopped making their mortgage payments.

Why did that happen? Because mortgage loans were made to people who did not meet the long-established qualification standards for getting a mortgage loan. And why did that happen? Because the Clinton administration threatened lawsuits against lenders who did not approve mortgage loans to minority applicants as often as to white applicants.

In other words, racial quotas replaced credit qualifications. A failure to have racial statistics on mortgage approvals that fit the government's preconceptions was equated with discrimination.

Attorney General Reno said that lenders who "closely examine their lending practices and make necessary changes to eliminate discrimination" would "fare better in this department's stepped-up enforcement effort than those who do not." She said: "Do not wait for the Justice Department to come knocking."

Clinton's Department of Housing and Urban Development (HUD) had similar racial quota policies, and began taking legal actions against banks that turned down more minority applicants than HUD thought they should.

HUD said that it was breaking down "racial and ethnic barriers" so as to create more "access" to home ownership. It established "goals" -- political Newspeak for quotas -- for Fannie Mae and Freddie Mac to buy mortgages that the original lenders had made to "the underserved population." In other words, the original lenders could pass on the increasingly risky mortgages to Fannie Mae and Freddie Mac -- and, ultimately, to the taxpayers.

Other federal agencies warned mortgage lenders against having credit standards that these agencies considered too high. And these agencies had many powers to use against banks and other lenders who did not heed their warnings.


Thomas Sowell

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

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