Tuesday, June 24, 2008

The Housing Mess Revisited.

One thing I have puzzled over about the housing crisis is why this loan mess started in the first place. As we know, there was sub-prime lending and people being routinely granted loans for houses that everyone knew could never be paid back. The simplest explanation is that the greedy and unscrupulous banks gave out the loans expecting the government to repay while deliberately plotting misery to the new homeowners. This explanation, however, has a major hole in it: Why is it that the banks of 15 to 20 years ago, who were just as greedy and unscrupulous as they are today, weren't doing this? What caused the change in behavior?

The other piece of the puzzle which I knew about, but someone had to remind me about, is that for decades our intellectual geniuses and people of conscience were screaming about racial profiling. According to the meta-narrative, blacks and other oppressed minorities were being denied housing loans while white were approved - and the only reason for this behavior was racial prejudice, not an inability to repay loans. Gradually the threats of litigation and legislation were increasing, while the facts inside the bank loan review departments became less and less relevant. Eventually, the only viable solution was to avoid the Wrath of the Left was to simply do away with all standards for obtaining a loan. The basics of economics then took over to create a housing bubble, followed by a loan bust and now there is a $300 billion dollar bailout in the works. Unfortunately, the Left isn't yet in an apologetic mood regarding the myth of "racial profiling". Thus, we can expect the banks to continue being coerced into giving out bad loans, while being publicly cursed for the fallout. Don't feel to sorry for the banks, however, because they will always be able to wiggle out of things with a bit of negotiation and cooperation with politicians.

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