Thread: Thomas Sowell: Regulators Started Housing Crisis

Thomas Sowell: Regulators Started Housing Crisis
Sunday, May 17, 2009 5:18 PM

Respected economist Dr. Thomas Sowell, author of the new book "The Housing Boom and Bust," tells Newsmax that the current housing crisis can be blamed on pressure from government officials seeking to remedy a "problem that didn't exist."

Dr. Sowell also said politicians' stated concern about that so-called problem — a lack of affordable housing — is "a farce."


Editor’s Note: To see the full Thomas Sowell interview, Go Here Now.
(Link posted at the conclusion of the article)


Newsmax.TV's Kathleen Walter asked Sowell what caused the "house of cards" in the housing market to collapse.

"The most fundamental thing is that the money that was normally paid for monthly housing payments stopped coming in, or stopped coming in in the volumes that it had in the past," said Sowell, a senior fellow at the Hoover Institution at Stanford University.

"The question then is, why did that happen? And the reason that happened was that banks and other lending institutions began lending to people who did not meet the traditional standards for mortgage loans, but were given those loans under pressure from government regulators, and even in some cases under threats from the Department of Justice if their statistics didn't match what the Department of Justice thought they should be — for example, in terms of income levels, race, what communities they invested in, and so on."

Walter noted that Sowell asserts in his book that politicians in Washington were trying to solve a problem that didn't exist.

"The problem that didn't exist was a national problem of unaffordable housing," Sowell explained.

"The housing in particular areas, particularly coastal California and some other areas around the country, were just astronomically high. It was not uncommon for people to have to pay half of their family income just to put a roof over their head. So that was a very serious problem where it existed.

"But it existed in various coastal communities primarily and a couple of other places. Unfortunately, the elites whose strongholds are on the East and West Coasts don't seem to understand that there's a whole country in between, and in most of that country housing was quite affordable by all historical standards.

"So they set out to solve the problem by setting up a federal program to bring down the mortgage requirements, the 20 percent down payment and that sort of thing, and by forcing Fannie Mae and Freddie Mac to buy up those mortgages from the people who no longer had to meet the same requirements.

"The banks had no choice but to go along because the regulators controlled their fate. So the banks would simply sign up people, sell the mortgages to Fannie Mae and Freddie Mac. It now became Fannie Mae and Freddie Mac's problem. And that meant it became the taxpayers' problem."

Walter asked: "Who is really responsible for all this?"

"There are a lot of people who were irresponsible," Sowell responded.

"But the fundamental problem, the problem of reduced lending standards, with people buying houses even with no money down in some cases, that all came precisely from the regulators that people are now talking about as the salvation of the housing market.

"There's no such thing as regulation in the abstract. There are certain kinds of regulation that can have beneficial effects. Canada does not have the same problem that we have even though they have regulations. But their regulators are trying to make sure that the banks and other lending institutions are obeying clear-cut rules. Ours were trying to produce higher statistics on home ownership in general, and in particular trying to reduce the gap between low-income people and high-income people, blacks and whites, et cetera."

Walter asked what Americans can do to ensure that the housing boom and bust will not happen again.

"First and foremost the voters have to learn to be skeptical and to find out what the facts are," Sowell said.

"There is not the slightest incentive for a politician to behave better in the future. If voters don't understand that, it's going to happen again.

"This is the worst housing crisis we've had but it is not the first. This very same drive to increase home ownership occurred under the Republicans in the '20s. It occurred under the Democrats in the '30s, and it occurred under both parties in the '40s and '50s.

"There is not the slightest incentive for politicians to learn from their mistakes because they pay no price for it. And they'll never pay a price for it as long as the voters don't make an effort to find out what is going on."

Sowell added: "I see absolutely no reason why politicians should take charge of which way prices go. That's precisely what led to the current disaster. . .

"When you realize how long politicians have been talking about a need for affordable housing, you realize what a farce it is."


Editor’s Note: To see the full Thomas Sowell interview, Go Here Now.
http://video.newsmax.com/?bcpid=2097246 ... 3466149001


http://www.newsmax.com/newsfront/sowell ... 15234.html

I remember when this started. Trust me, it was set up to help minorities only. In all honesty, I don't blame them, if it weren't for section 8 housing. Basic math, why should I pay your bills, your insurance, your repairs, your NEW home, get no protection and get tossed without a reason? It was cheaper to risk buying a home, than it was to get continually ripped off by SLUM LORDS!!!!!!!

We just got our new property taxes. To live in this state, with no debts, owning everything we own, just to pay TAXES and BASIC living requirements.......it costs me more than I've ever paid before! THINK ABOUT THIS.....I OWN my home. I OWN 2 cars...I have NO CREDIT CARDS, I pay for JUST TAXES, basic repair, insurance and it costs me 28,000 to just maintain. No food, no medical,,,just to MAINTAIN what I already OWN!!!!!!!!!!


People in debt, owning nothing, live a better quality of life than I do. Why? Because I OWN it. And they want it.. And they want to take it.

We aren't talking McMansions here....it's habitat humanity homes. Homes they would rent for 1,500 a month, for people working for minimum wage. ADD it up....it doesn't work! It doesn't work for medicaid people without governmant funding for section 8.

I have managed to pay my bills on time. I also own my home, car and pay taxes. Credit cards make no money off of me as they are paid off at the end of the month.
As a former mortbage broker in the days before liar loans, I may have broken up a few marriages. I ran credit checks when either hubby or wife had some serious problems (which wife or hubby knew nothing about). I denied more people than I approved. The no-down, no income verification, negative amortization loans would have given me ulcers had I to deal with them.
Years ago, I had a debate with an elderly man from Europe, who only paid cash for everything--not enough cash, you couldn't afford it. While I gave him a lecture that I could buy ten homes for $100,000, while he could only buy one--I need to apologize to him as had we all the same theory as he, we would not be in this mess today.

Thomas Sowell is a fantastic voice of reason 99% of the time. It would be higher, but I do disagree with him on an issue or two.

I think everything in this article is right on. If you don’t put money down, have a horrid credit history, or can’t afford an A.R.M.’s increases, it’s unlikely that you could be successful as a home owner.

Both times I bought condos, I saved 20%+ to put down. I didn’t do it because the bank made me; I did it because my friends and family convinced me it was the right thing to do. I also could never stomach the idea of A.R.M.s, so I never took one. I paid the higher percentages to be able to sleep better tonight. A lot of people gambled on them and lost. I fail to see why I should help bail out their risky behavior. The next thing you know, I’ll have to give money to those who lost at roulette.

It’s just a good thing that the government isn’t meddling in the insurance, banks, and car manufacturers. What’s that? They already are? Never mind then. Sorry…