Phi Beta Cons

The Right take on higher education.

Re: Homeownership Gap


Was “the Left” responsible for the current housing crisis? The CRA played an important role, and the CRA was a pure leftist project.

But he bigger villain in the drama was the Fed, which drove interest rates down to ridiculous levels following the “” recession. Greenspan had a horrible fear of deflation and thought the economy needed a vast infusion of liquidity. Without that, the housing bubble would have been far smaller. The government’s attack on lending standards to facilitate the political objective of increasing home ownership was bad, like having a cold, but it took the Fed’s handiwork to turn it into pneumonia.

Is the Fed a project of the Left or Right? Here, the terms can get in the way of clear thinking. Bankers called for it, but the Fed is an anti-capitalist intervention and one of the worst blunders in American history. Back in the ’90s, Bill Clinton called for a “national dialogue” on race; what we really need now is a national dialogue on our monetary system. Having a politically manipulable fiat money system has done us tremendous damage.

Finally, a note on prime vs. sub-prime lending: Sub-prime loans have higher default rates than prime ones, but that was the case even before the housing crisis. After the crisis, the default rates of prime and sub-prime loans rose at the same pace. The more important distinction is that between fixed-rate and adjustable-rate mortgages — default rates for the latter rose at a much faster clip once the bubble burst. So argues economist Stan Leibowitz in an Independent Institute paper.


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