Dissent Of The Day

A reader writes:

The real point of what I’m sure has been a flood of criticism should be this; don’t always conflate the unintended consequence with “misadventures in big government.”

I think many would argue that the mortgage industry worked remarkably well until recently. But then something seemed to happen. A round of deregulation coupled with record low prime lending rates. What wasn’t to like? New and innovative mortgage products and low monthly payments for everyone. And not a regulator in sight to sour the party atmosphere. So why is anyone surprised at the size of the hangover?

What galled me about the Jacoby column is that it attempted to lay the blame for the sub-prime mortgage mess at the feet of a program (Community Reinvestment Act of 1977) designed to redress a very specific issue of discrimination. We can all debate the program’s success, and whether Congress should have even been the vehicle to tackle “redlining.” But Jacoby, and by his quotation DiLorenzo, tried to link the current debacle to the CRA without even discussing simple things such as a correlating trend of increasing foreclosures. Go back to the Jacoby column for a moment. He mentions interest only loans as one of the risky mortgage products. I agree completely. But I know several realtors and until recently, say the 1999-2000 timeframe, they tell me that an interest only loan was a rarity. Now this is anecdotal information, but a more convincing argument would have addressed this issue with some backing statistics. And I did go look for DiLorenzo’s article about the CRA which provided more detail, but no statistics as backup that I could find.

What is ironic is that government does need to be watched. Unrestrained growth in government programs is dangerous, not to mention expensive. But you can’t expect to win these debates by latching onto something as unlikely as a direct link between the CRA and the current sub-prime meltdown.