The historic effects of the past year are a direct result of the “socialization of America” as evidenced by the loosening of lending standards.
As you know, standards and rules are put in place to govern the propensity for people to do stupid and/or illegal acts normally associated with the intellectually challenged. When those rules get abandoned and tossed by the side of the road, a whole new set of problems arise.
Based on a 1992 Boston Federal Reserve study of mortgage lending, policy makers in this country reached conclusions that there was evidence of…
“patterns of gender and familial status discrimination that differ markedly by race in the US. White couples with children experienced familial status discrimination if the female partner was in the labor market, but not if she was at home raising her children. However, African-American or Hispanic couples with children suffered familial status discrimination if she stayed home to raise her children, but much less so, if at all, if she was in the labor market. This pattern of racial differentiation may reflect social norms dating back to slavery that have favored labor force participation for African-American and Hispanic mothers but not white mothers. “
Over a period of time, this kind of thinking set the stage for a gradual loosening of standards that was promoted by many groups including, consumer advocates, construction and financial industry participants, human and civil rights groups and elected officials. Whether it was subliminal or overt, the message was clear: everybody has a “right” to homeownership, regardless of race, color, creed, marital status or sexual orientation. That’s all well and good. I’m all for seeing people improve their standard of living and lot in life. But, not at the expense of sound economic and fiscal discipline.
Criteria such as a borrower’s credit history, income, time on the job and family history should not be looked at as “outdated”, “negative” or “discriminatory” when it comes to determining who qualifies for a mortgage. It has nothing to do with race or “culture”. It has everything to do with sound fiscal discipline and responsibility.
Standards are there to protect BOTH the lender and the borrower. Unfortunately, policymakers failed to grasp this concept. By pressuring the banking and financial community to lower their lending standards, our government, through the voice of “the people” and special interest groups, has contributed to the problem.
It also gave the incentive for bankers, mortgage brokers and homebuilders to carry out its own social mission. Simple economics. If you give people an opportunity to make a greater return from doing something, the more they are going to do it. The builder gets to build a house, the bank gets to make a loan and the homebuyer gets a home . Now everybody is happy! What a good economy and nice government we have.
Government social policy has created all this havoc. And we all will pay for it—-for a long time.
The scary thing is….they’re not done yet.
The ripple effect of this socialization of the “American Dream” of homeownership, that started back in the early 1990’s, has been felt globally today.
Furthermore, this mindset is also seen in the corporate world as we witness government intervention becoming more prevalent in preventing failures or collapses of organizations vital to the economy. How big does one entity have to get to become “too big to fail”—-to get a free pass?
Right now, we are seeing an “end around play” on American capitalism, the likes of which has not been seen in the history of this country. Correction, it’s probably more like a “double end around flea flicker”, when you consider that the government now owns trillions of dollars in collateralized mortgages through a bailout of Fannie and Freddie. In football, as in life, trick plays are designed to fool the defense and “wow” the crowd.
I’m not sure what will change this. Maybe we’re too far down the path to go back the way of fiscal responsiblity. God help us.