Commentary: The Law of Unintended Consequences
How our government created the subprime mess and led us to the brink of financial disaster.
A research paper written in March by Carmen Reinhart and Kenneth Rogoff, “This Time is Different: A Panoramic View of Eight Centuries of Financial Crises,” reveals that credit and business cycles have several things in common, mainly the debasement of money, which, in our current case, is inflation, otherwise known in its initial stages as “easy money.”[1] The point of the article is that, this time is not different from other cycles.
During these cycles, easy money is pumped into the system, distorting financial decisions, encouraging the malinvestment of capital, and causing prices to rise. Prices rise faster than their productively useful value. Eventually money is deflated, and prices go back to a price-value equilibrium.
Credit cycles in modern times are created by the central bank: the Fed. These cycles tend to behave the same way, but the asset class differs from cycle to cycle. In 2001, it was dot-com tech stocks; in 1990, it was the S&L bust affecting investment real estate; in 1981, it was Fed’s tight monetary policy trying to kill stagflation.
In the subprime crisis, too much money chased residential properties in excess of their useful value in the economy, and now housing prices are seeking the proper market ratio of price to value.
You don’t have to be an economist to figure this one out. Some call it the biggest bubble in our history. From January 2001 to June 2004 the federal funds rate went from 6 percent to 1 percent. Home ownership grew from an average of about 60 percent of families to almost 70 percent at the height of the boom. It has been estimated that up to 24 percent of all residences were bought by speculators (those who didn’t live in the homes they bought).
From June 2004 to September 2007 the federal funds rate went from 1 percent to 5.25 percent. Money got tighter, and then ... BUST!
How did we get here?
If I hear one more time that this fiasco was caused by the lack of regulation, I’ll throw up, so to speak. This was caused by regulation and your government. Who’s saying this? Barney Frank, Chris Dodd and Chuckie Schumer. I’ll get back to them, but first look at the facts.
1. The Fed created the credit cycle. Easy money flooded the system. This starts the boom part of the boom-bust cycle.
2. Easy money set the stage for the financial community to do what it always does best: make money.
3. Their investment focus during this cycle settled on mortgage debt, and specifically, subprime debt.
4. They focused on subprime debt because that’s where the fees were. Investment bankers, commercial bankers, mortgage lenders and brokers made fortunes originating and selling this stuff.
5. They did so because they could. Now, why would anyone lend to someone who couldn’t afford to buy or finance the purchase of a house? No one in their right mind. Unless ...
6. Enter Fannie Mae and Freddie Mac: they subsidized the risk of those loans by guaranteeing them.
7. Why would Fannie and Freddie guarantee bad loans? Political pressure. Starting in 1990 the Clinton administration, using its powers over banks and housing through the Community Reinvestment Act (Carter, 1977), instructed lenders, and Fannie and Freddie to make more loans to those who couldn’t afford them. They loosened lending standards to allow it.[3]
8. Then Wall Street figured a way to bring tons of money into that system: mortgage-backed subprime securities. These were sold throughout the world as safe financial instruments. After all, Freddie and Fannie would guarantee these loans.[4]
9. So, banks and mortgage lenders geared up to feed the frenzy. They generated billions of dollars of subprime loans, most guaranteed by Fannie and Freddie, and underwritten according to Fannie-Freddie requirements, and sold them to investors. They got their fees and everyone got fat.[5]
10. It worked until the merry-go-round stopped and homes stopped appreciating. Then the cleverly named “subprime” mortgages became the “junk” mortgages that they always were, and their bonds, junk bonds.
So what went wrong?
In 2002 many people were saying that a train wreck was heading for us and it was called Federal National Mortgage Association (Fannie Mae) and Federal Home Loan Mortgage Association (Freddie Mac). Fannie and Freddie are among the largest financial companies in the world. They control half of the mortgages and related securities in America: about $5 trillion worth. The Wall Street Journal ran a series of articles and opinions about the oncoming disaster as early as 2002.[6]
Who listened? Thanks to some generous lobbying funds spread around to lawmakers by Fannie and Freddie, apparently no one in Congress. In fact the politicians who regulated them went out of their way to encourage more loose lending standards.
Here are a series of hearing transcripts reported in The Wall Street Journal.[7] Some of these can be seen on YouTube. Rep. Barney Frank, D-Mass., and Sen. Chris Dodd, D-Conn., are now chairmen of the congressional committees that regulate Fannie and Freddie. These aren’t taken out of context; these hearings were about the oncoming train wreck.[8]
House Financial Services Committee hearing, Sept. 10, 2003:
Rep. Barney Frank: I worry, frankly, that there’s a tension here. The more people, in my judgment, exaggerate a threat of safety and soundness, the more people conjure up the possibility of serious financial losses to the Treasury, which I do not see. I think we see entities that are fundamentally sound financially and withstand some of the disaster scenarios ...
House Financial Services Committee hearing, Sept. 25, 2003:
Rep. Frank: I do think I do not want the same kind of focus on safety and soundness that we have in OCC (Office of the Comptroller of the Currency) and OTS (Office of Thrift Supervision). I want to roll the dice a little bit more in this situation toward subsidized housing ...
Rep. Frank: Let me ask (George) Gould (Freddie president) and (Franklin) Raines (Fannie president): on behalf of Freddie Mac and Fannie Mae, do you feel that over the past years you have been substantially under-regulated? Mr. Raines?
Mr. Raines: No, sir.
Mr. Frank: Mr. Gould?
Mr. Gould: No, sir. ...
Mr. Frank: OK. Then I am not entirely sure why we are here. ... I believe there has been more alarm raised about potential unsafety and unsoundness than, in fact, exists.
Senate Banking Committee, Oct. 16, 2003:
Sen. Charles Schumer, D-N.Y.: And my worry is that we’re using the recent safety and soundness concerns, particularly with Freddie, and with a poor regulator, as a straw man to curtail Fannie and Freddie’s mission. And I don’t think there is any doubt that there are some in the administration who don’t believe in Fannie and Freddie altogether, say let the private sector do it. That would be sort of an ideological position.
Mr. Raines: But more important, banks are in a far more risky business than we are.
Senate Banking Committee, Feb. 24-25, 2004:
After Fed Chairman Alan Greenspan informed the committee of the oncoming train wreck:
Sen. Christopher Dodd: I, just briefly will say, Mr. Chairman, obviously, like most of us here, this (Fannie and Freddie) is one of the great success stories of all time. And we don’t want to lose sight of that and (what) has been pointed out by all of our witnesses here, obviously, the 70 percent of Americans who own their own homes today, in no small measure, due because of the work that’s been done here. And that shouldn’t be lost in this debate and discussion. ...
Senate Banking Committee, April 6, 2005:
Sen. Schumer: I’ll lay my marker down right now, Mr. Chairman. I think Fannie and Freddie need some changes, but I don’t think they need dramatic restructuring in terms of their mission, in terms of their role in the secondary mortgage market, etc. Change some of the accounting and regulatory issues, yes, but don’t undo Fannie and Freddie.
Senate Banking Committee, June 15, 2006:
Sen. Chuck Hagel, R-Neb.: Mr. Chairman, what we’re dealing with is an astounding failure of management and (the Fannie) board (of directors) responsibility, driven clearly by self interest and greed. And when we reference this issue in the context of — the best we can say is, “It’s no Enron.” Now, that’s a hell of a high standard.
Now we have to hear Barney Frank and his friends say, quite loudly, that this crisis has been caused by the Bush administration’s failed deregulation and free-market policies. Nothing could be further from the truth.
The fact is that the mortgage market and industry is one of the most heavily regulated industries in America. The New Deal regulation, the Treasury, the Fed and SEC regulate the hell out of banks, mortgage lenders, and the issuers of securities. We’ve all seen the reams of paper we have to sign to get a mortgage. These forms disclose every possible thing that could impact a borrower. Banks can’t sneeze without asking the Fed, or the Treasury, or the FDIC. Fannie’s and Freddie’s operations are heavily regulated by the Office of Federal Housing Enterprise Oversight.
I would like Messrs. Frank, Dodd and Schumer to tell us where this industry was deregulated and why it caused this crisis.[9] If it was so foully deregulated, and since they control the House and Senate committees regulating these issues, why didn’t they stop it? They can’t because it didn’t happen. It’s hypocrisy, political theater, and demagoguery at its worst.
Why the worst? Because when the free market makes mistakes, it pays the price. When the government makes mistakes, we pay the price.
The Law of Unintended Consequences
There’s enough blame to go around, including Wall Street, but this crisis was and still is being caused by government regulation and laws. This couldn’t have happened without misplaced and misunderstood government action. What these politicians failed to understand is another law: the law of unintended consequences.
Choices have consequences. If you choose the wrong policies and pass bad laws, the laws of economics will eventually catch up with you, as it has with us today. Even assuming these politicians meant well, they had no idea what harm their laws and regulations would cause.[10] They didn’t consider these risks. Many economic regulations have unfavorable unanticipated consequences.[11]
The young Wall Street MBAs who invented these new mortgage-backed securities assumed that housing values would continue to rise, or at least not decline. They failed to properly anticipate risk and suffered the unintended consequences of their actions.[12]
These politicians and financiers failed to consider that they were creating huge potential risk to the economy. Even when the risks were right in front of them, they ignored them. Perhaps we can be charitable and say they just weren’t aware that their well-meaning actions would cause financial disaster.
That is the danger when politics and politicians intervene in the workings of a free society. These decisions affect very complex markets. In a free market decisions are made by millions of people, which generally work out well when you spread risks over a large group. When politicians make decisions affecting the market, you have substituted the actions of millions for the decisions of a handful. These command economy decisions, when wrong, cause widespread suffering. [11] While politicians talk about reducing risk in the economy they should look to themselves; most often they create it.[13]
Footnotes
[1] See also a paper published by the St. Louis Fed, “Understanding the Subprime Mortgage Crisis,” Demyanyk and Van Hemert, Dec. 10, 2007.
[2] Chart provided by Frank Shostak, chief economist of M.F. Global for an article published by the Ludwig von Mises Institute.
[3] They lent up to 95 percent of appraised value, with credit scores just above 500, on the basis of what the borrower said they were making without needing to provide proof of earnings (the so-called “liar loans").
[4] For a detailed discussion of these securities, see my article, “Peeling Back the Onion,” on my Subprime Crisis Forum blog.
[5] The original lender now is gone and has no investment tied up in these mortgages because Fannie or Freddie bought them. The original lender could not care less what happens next.
[6] Wall Street Journal, Feb. 20, 2002, “Fannie Mae Enron.”
[7] Wall Street Journal, Oct. 2, 2008.
[8] Dodd received $165,000 from Fannie and Freddie; Schumer, $24,000; Frank, $42,000; Sen. Barack Obama, D-Ill., $126,000; Hagel, $4,500.
[9] Even former President Bill Clinton admits that the repeal of Glass-Steagall in 1999 had nothing to do with today’s crisis.
[10] Dodd, Schumer and Frank were trained as lawyers, and didn’t have undergraduate degrees in economics or business, which is typical among lawyers and politicians.
[11] The Great Depression is a classic example of how our government turned a nasty crash into a decade-long depression.
[12] This is a Black Swan event. See the wonderful book, Black Swan by Nasim Taleb about the evaluation of risk in investing. I’ve criticized Wall Street extensively in my blog.
[13] “Never again!” statement by Gov. Sarah Palin in the vice-presidential debate, Oct. 2. She further railed about greed and Wall Street.
Jeff Harding is a lawyer, developer and principal of Montecito Realty Investors LLC. A student of economics, he has a strong affinity for free-market economics. This commentary originally appeared on his blog, Subprime Crisis Forum.
» wrote on 10/08/08 @ 02:29 AM
Thank you for the TRUTH. FACT: Congressional Democrats fed off Fannie & Freddie (Dodd received $165,000 from Fannie and Freddie; Schumer, $24,000; Frank, $42,000; Sen. Barack Obama, $126,000) and FOUGHT OFF reform. Now they want to lay the blame on “the Bush Administration.” Having the TRUTH come out distresses followers of the Obama Nation. But coming out it is… Thank you for this article. I’ll be mailing it along…
» wrote on 10/08/08 @ 10:58 AM
Sorry, this has been discredited too many times to repeat. Deregulation is the cause, not Fannie and Freddie (who of course share some blame, but they are not the cause of the collapse).
Everyone do a little economics reading before you believe this. Here is a small explanation from Barry Riholtz from his “The Big Picture” website today (there is plenty more out there, just stay away from Faux News sites, and if you read the Wall Street Journal, remember that the editorial page is just that, and often conflicts with its excellent business reporting:
“From a speech back in 2004 comes this telling quote:
>
“One other thing I’ve done, is I’ve called on private sector mortgage banks and banks to be more aggressive about lending money to first-time home buyers. And the response has been really good. There’s a lot of people in this—our communities around the country that deeply care about the issue of homeownership, and they’ve been responsive.”
- George W. Bush, U.S. President, March 26, 2004.
>
Its important to understand how this situation occurred in the first place, if we want to be able to fix it. Blaming the CRA and Fannie/Freddie is a total misunderstanding of how the problem occurred, and what we need to do to fix it now, and avoid doing it again in the future.
To repeat my prior arguments, the proximate cause of the Housing crisis were 1) Ultra-low rates; and 2) Abdication of traditional lending standards, thanks to 3) originators ability to resell mortgages for securitization purposes, and hence, 4) not have to worry about loan defaults.
The credit crisis was caused by 1) the above securitized mortgage paper, that was 2) rated triple AAA by Moody’s and Standard & Poors, which then 3) Which was then “insured” by credit default swaps (CDS)—the unreserved for, shadow insurance products 4) whose exemption was made possible by the Commodities Futures Modernization Act. That legislation exempted these derivatives from any supervision or regulation. The lack of reserve requirements is why there is now $62 trillion in CDS, many of which will never pay their counter parties the promised insurance.
If you are going to blame Fannie/Freddie/CRA, or George Bush or Barney Frank, you are missing the big picture.”
» wrote on 10/08/08 @ 10:59 AM
Some more questions to consider before you believe this:
“Let’s clarify the causes of current circumstances. Ask yourself the following questions about the impact of the Community Reinvestment Act and/or the role of Fannie & Freddie:
• Did the 1977 legislation, or any other legislation since, require banks to not verify income or payment history of mortgage applicants?
• 50% of subprime loans were made by mortgage service companies not subject comprehensive federal supervision; another 30% were made by banks or thrifts which are not subject to routine supervision or examinations. How was this caused by either CRA or GSEs ?
• What about “No Money Down” Mortgages (0% down payments) ? Were they required by the CRA? Fannie? Freddie?
• Explain the shift in Loan to value from 80% to 120%: What was it in the Act that changed this traditional lending requirement?
• Did any Federal legislation require real estate agents and mortgage writers to use the same corrupt appraisers again and again? How did they manage to always come in at exactly the purchase price, no matter what?
• Did the CRA require banks to develop automated underwriting (AU) systems that emphasized speed rather than accuracy in order to process the greatest number of mortgage apps as quickly as possible?
• How exactly did legislation force Moody’s, S&Ps;and Fitch to rate junk paper as Triple AAA?
• What about piggy back loans? Were banks required by Congress to lend the first mortgage and do a HELOC for the down payment—at the same time?
• Internal bank memos showed employees how to cheat the system to get poor mortgages prospects approved that shouldn’t have been: Titled How to Get an “Iffy” loan approved at JPM Chase. (Was circulating that memo also a FNM/FRE/CRA requirement?)
Caseshillerpricedeclines_2
• The four biggest problem areas for housing (by price decreases) are: Phoenix, Arizona; Las Vegas, Nevada; Miami, Florida, and San Diego, California. Explain exactly how these affluent, non-minority regions were impacted by the Community Reinvesment Act ?
• Did the GSEs require banks to not check credit scores? Assets? Income?
• What was it about the CRA or GSEs that mandated fund managers load up on an investment product that was hard to value, thinly traded, and poorly understood
• What was it in the Act that forced banks to make “interest only” loans? Were “Neg Am loans” also part of the legislative requirements also?
• Consider this February 2003 speech by Countrywide CEO Angelo Mozlilo at the American Bankers National Real Estate Conference. He advocated zero down payment mortgages—was that a CRA requirement too, or just a grab for more market share, and bad banking?
The answer to all of the above questions is no, none, and nothing at all. “
» wrote on 10/08/08 @ 12:43 PM
FV - the point is… those at the TOP that were supposed to protect US were getting RICH off this toxic mess instead!!! You can spin it anyway you want, the Dems BLOCKED reform. And we ALL pay. Obama is just another lying lawyer. Here’s another expose on the Subprime meltdown.
» wrote on 10/09/08 @ 12:45 AM
Note the (Phil)Gramm-Leach-Bliley Act which repealed the Glass-Steagall Act in the name of deregulation, it was truly a bipartisan effort. Citigroup was created from that, and when the fail it’s going to hurt big time.
And there’s also:
http://www.whitehouse.gov/news/releases/2004/08/20040809-9.html
Fact Sheet: America’s Ownership Society: Expanding Opportunities
...
American Dream Downpayment Initiative, which provides down payment assistance to approximately 40,000 low-income families;
...
It was truly a bipartisan effort.
» wrote on 10/09/08 @ 12:53 AM
Also, Rick Davis, the chief executive office of McCain’s campaign, was paid $15k/month by Freddie Mac for a number of years:
http://en.wikipedia.org/wiki/Rick_Davis_(politics)#Payments_from_Freddie_Mac
His defense is he didn’t do much for them. They just threw money at him expecting nothing in return. Yeah right. The article is anything but a documentary on this subject, it’s a political hit piece vs a bipartisan effort to dig into what actually caused this crisis.
» wrote on 10/10/08 @ 03:07 PM
Isn’t it interesting the only people for decades that qualified for sub-prime loans were veterans. Cal Vet. and VA loans. The reasoning was we have spent time serving the country and in the process were considered to have gained understanding of the “real” world. (Nothing like putting on cammies, loading up with ammo and sweating for days or weeks to give a perspective on the real world.)
Then came the everyone is “entitled” crowd. No sweat, just exist regardless of income and you will “qualify.”
Those who made it through the depression, WWII, and the post war “economic adjustment” knew better. It was the hippy dippy’s of the socialist bent deciding the right to work for and achieve was now an entitlement to own a house.
The State of California left have forgotten the ethic of the 1930’s (work and thrift) and put us into $17 Billion in a red ink hole (just stop spending). These same people extend “right of entitlement” to illegals busting the health care system. e.g. The County of Los Angeles emergency room admits droped 2/3 when the illegals thought they would be turned away without valid immigration papers.
Schools groan and break under the weight of “entitlement” mentality. e.g. We are entitled to have our own language even when the test scores show conclusively different.
Perhaps even the left will get this time around . There isn’t enough money to pay for their “entitlement” programs and mentality.
» wrote on 10/11/08 @ 03:08 AM
6 PM - Saturday Oct. 11 - Fox News “Saving Our Economy - What’s Next?” REVEALS ALL. And it ain’t pretty. Excellent explanations of how this debacle happened and all about the Fannie & Freddie gang.
» wrote on 10/11/08 @ 08:04 PM
First let me thank all of you who commented on my opinion piece. The cause of this mess will be discussed for years, but I’m going to stand on my view that this thing was caused by government regulation.
TO FV: You have made a lot of comments and I appreciate everything you say, but I’ll disagree. I’ll discuss your points.
“Sorry, this has been discredited too many times to repeat.”
I’ve done a lot of reading on the subject and many economists would agree with me. Paul Krugman would disagree with me. I like a lot of Barry Ritholz, but I think he’s dead wrong. Barry is a smart market commentator but he’s not an economist.
I see your arguments about the cause of the credit crisis and I think you’re mixing things up a bit to win an argument.
But you are correct that it was caused by ultra-low interest rates. Where did that come from? Like all credit-business cycles, it comes from the Fed. Easy money. I think the overwhelming majority of economists would agree on this. I believe this is government action.
You then state the following “cause” of an “abdication of traditional lending standards.” As I point out in my article, if Fannie and Freddie didn’t lower their lending standards and guarantee these loans, no one would buy these loans from the originators, whether or not they are securitized. I would call this government action, wouldn’t you?
The Community Reinvestment Act was a major piece of legislation because it injected politics into the operation of banks. It was a way for “community groups” to pressure lenders to make loans they otherwise wouldn’t make because of the risk. Now, we can argue the merits of such legislation, but it did and still does have an impact on lending standards. It forced banks to lower lending standards to borrowers in communities deemed politically deserving. Fannie and Freddie were required to buy securitized subprime CRA loans. Let’s say it helped set the stage for what followed.
I’m not going to address each point you mention in your second commentary. I see that you got many of these questions from Ritholz’s blog. I’m going to agree with most of them because the CRA wasn’t the primary “cause” of these effects of the credit cycle. But my argument isn’t based solely on the CRA.
Wall Street was at fault for many of the things you discuss, but these things weren’t the “cause” of the crisis. They were effects. What happens in all credit cycles is there is a massive inflation of the money supply resulting in a boom and then a bust. This isn’t opinion; it’s fact.
This easy money sets the stage for the bubble, which is the inflation of assets, speculation, irrational speculation, and bust. We all know about the Tulip Craze, the South Seas Islands bubble, and just about every cycle in history. Why do you think the cause of this boom–bust is different?
Capitalists do what they do; it’s human nature. As Willi Schlamm, a reformed Austrian communist said, “The problem with socialism is socialism. The problem with capitalism is capitalists.”
If you think we can regulate the risk out of capitalism, you’d have to regulate the entire economy and we’d have socialism or some form of command economy.
If you read elsewhere in my blog, you will find plenty of criticism of Wall Street, and exactly how they did what they did, so I don’t spare them.
By the way, don’t get me started on Bush.
» wrote on 10/12/08 @ 01:43 PM
Jeff Harding you are brilliant.
FV says many things that are right but they are in addition to, and add to, your points to give the complete picture.
The point is that the things FV says do not discredit what you say, but compliment it by painting a more complete picture.
The things you both say are not mutually exclusive but can both be true at the same time.
No matter how anyone spins this it is primarily government and Fed policy and regulation, or the lack thereof, that was the primary cause of allowing this mess to happen.
Of course it was caused by low interest rates but the question is just who put these low interest rates in place.
And if Banks were regulated to have to just stick to sound banking principles, and had to keep the home loans they made, and not allowed to bundle, sell, and dealing in risky and unsound home loan securities then the banks would not be failing.
It is clearly deregulation that allowed this mess to happen. Of course the government didn’t actually do the deeds--this was done by greedy people outside of the government, but the whole point is that they couldn’t have done what they did if government had kept proper regulation to prevent of the banking and home loan and security industry from just such greedy, excessive, and risky, ands stupid, behavior.
» wrote on 10/12/08 @ 03:49 PM
No Down No credit No income No verification, on welfare, on food stamps, Liberals in the democratic party wanted to pander to you--You now own a home--What fools
» wrote on 10/12/08 @ 11:54 PM
Thank you, Fan, for the compliment. But the gist of my argument is that deregulation didn’t cause the problem: the Fed and existing regulation caused it. I still don’t know of the deregulation that people are talking about. Even Bill Clinton said that the repeal of Glass-Steagall didn’t have anything to do with our crisis. But I’d like more information on the deregulation you refer to.
» wrote on 10/14/08 @ 10:23 AM
This article is a classic effort at trying to shift blame. Do Schumer, Frank and Dodd bear some moral responsibility for what took place with Fannie Mae and Freddie Mac, I suspect that they do. There are few politicians who have entirely clean hands from either party because of the way that our government has been for sale to the highest bidder for the longest time. Although I would suspect that this author would be the first to argue against lobbyist reform and would argue that giving huge gobs of money to influence the political process was protected speech under the Constitution as mmost of the political right does.
However, one should take note of the dates of the various congressional committees when Schumer, Frank and Dodd are being cited in this article. They all took place between 2003 and 2006. They were all participating at that time as the minority members of their respective committees in a Republican controlled House and Senate. So the political reins were in the hands of the Republicans at that time and to allege that the Democrats who took control of these committees only from January 2007 were responsible for what occurred when the majority party failed to take action for the preceding 12 years during which they held the power is clearly a self-serving political effort to shift the focus away from where it ought to be! Anyone really interested in the history of this mess might want to take a look at
http://financialservices.house.gov/
and click on the link that is entitled “The Truth versus the Republicans on the Regulation of Subprime Mortgages and Fannie Mae and Freddie Mac” It refers to the preceding 12 years of Republican control of that committee that only ended in 2007. However the kind of clever but specious arguments presented in this article have been par for the course from the right of the political spectrum for the last decade or longer and it looks as if a majority of the public, now sadly poorer but wiser, has finally, albeit belatedly, cottoned to this!
» wrote on 10/14/08 @ 02:33 PM
Stu:
Thank you for the compliment of being “clever.” “Specious?” I don’t think so.
I contend that “government action” was the cause of this. I don’t really care which party did it.
But, it’s a fact that most of the lobbying money from Fannie and Freddie went into the hands of the Democrats. They, regardless of what they now say, were the main obstacles to reform. But I say, to the extent the Republicans blocked reform: off with their heads too.
Stu, wouldn’t you say that it is generally the policy of the Democrats to inject more government control into the economy? I suspect you would.
I would say that, that IS the problem.
I would also say the Republicans, historically have been against government influence in the economy. But that is not their recent history. So I don’t like them either.
So please don’t read my arguments as being “Republican” because they are not.
Lobbying? I think it is bad, but the politicians should be the criminals, not the lobbyists. The problem in banning it is that the haves can’t protect themselves from the have-nots who want to take their money or destroy their businesses. I assume you would think that’s fine. Which is typical of those on the left who think the end justifies the means.