AN EXAMPLE OF A BIG FAT LIE

mortgage3The Washington Post (more accurately The Compost) ran one of its pathetic hit jobs today. Did The Compost target a particular politician? No. Instead, furthering the cause of statism, they attacked the mortgage lending industry for a problem largely created by government. In Broken by the bubble, The Compost presents us a tear-jerking story about well-paid people who during the housing boom in 2006 and 2007 bought more expensive houses than they could easily afford. Therefore, when the bubble burst, they could not continue their payments, and the banks foreclosed on them. That, of course, made their foolishness the fault of “predatory lenders.”  In fact, it makes it the fault of racist predatory lenders.

Marsh, uniquely trained to understand just such a neighborhood transformation, can see both sides of the equation.

“As a resident, I welcome and celebrate the socioeconomic and family type of diversity present in Fairwood,” she said in an e-mail to The Post. “As a sociologist and demographer, I am troubled that Fairwood was hit hard in the housing crisis, especially given the number of black Fairwood residents. It begs the hypothetical yet sociological question: Would the same magnitude of predatory lending have taken place in Fairwood if it were a predominantly white middle-class area?”

Subprime loans were largely prohibited until Congress in 1980 passed legislation lifting state interest rate controls on out-of-state banks.

At first, just a handful of small lenders made subprime loans. But as investors in the 1990s sought more mortgage-backed securities, which bundled subprime loans with other loans, demand grew. The high rates of return on the securities quickly made subprime loans the darlings of Wall Street. (from here)

Keep in mind that this a story about homes once valued at $700,000 purchased by people with median incomes of more of than $170,000.  So we are not talking about naive citizens. Instead, we are talking about people who received subprime loans to buy expensive homes. In fact, what is ironic about the charges of racism is that the lenders probably felt pressured by the government to make subprime loans to minorities.

The Compost attributes these subprime loans to “predatory lending,” but who loans their own money to someone who cannot pay them back with interest? Nobody. Therefore, somebody bought the loans these “predatory lenders” were making. Who? Check out SOME BACKGROUND ON OUR FINANCIAL MESS. Our government and government sponsored agencies used our money to help create this mess, but is that what The Compost wants us to believe? No. We are just suppose to feel sorry for people who bought more house than they could afford.  Yep! The taxpayer is suppose to be the big sucker and bail out everyone, even those predatory lenders.

7 thoughts on “AN EXAMPLE OF A BIG FAT LIE

  1. You make an excellent and necessary point here (although I don’t share your disdain for the Post – it’s not the paper it once was, but, generally, I think it does a pretty good job of dropping a lot of useful news and commentary in my driveway each morning).

    The point I agree with you on (and that wasn’t emphasized in the article) is that we have created an enormous, self-perpetuating government contrivance based on the assumption that home ownership is a universal good thing for all citizens. There may have been a period in our economic history when that assumption had some statistical validity, but we tried to jigger the market and its signalling mechanisms in a way that masks, for the average person who doesn’t spend all their time glued to CNBC, WSJ or IBD, that times may be a-changing and that large individual debts should not be undertaken on the assumption that the secured asset will always increase in value.

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    1. Question: Why would we ever want the government in the mortgage lending business? We trust politicians to loan the taxpayer’s money, our money? If we do, we must be nuts!

      And where in the Constitution is Congress authorized to do that anyway?

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  2. Your last comment seems to reflect confusion as to what the federal government does in these mortgage scenarios. It (and, by extension, the “politicians” whom you do not trust) does not lend public funds to citizens to buy houses (if we decide to go into detail, we may have to start making distinctions between lenders, assignees, guarantors or other actors in the financial structure, but, for now, take my word for it that the role of the national government is not to lend money to us to buy our houses). Obviously, from my previous comment, I share your misgivings about whether federal housing policy makes sense in current conditions. However, the problem you posit (that the federal government has gone into the direct residential housing lending business using public funds and that there might be a constitutional impediment to that) is not a real world problem.

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