Sowell: Blame Pols for Sub-Prime Crisis

American Thinker, August 10, 2007 - Rick Moran wrote,

Leave it to Thomas Sowell, the brilliant economist and conservative thinker, to show us why the housing market is collapsing and why the sub-prime mortgage industry is in crisis:

Attractive and heady phrases like "open space," "smart growth" and the like have accompanied land-use restrictions that made the cost of land rise in many places to the point it greatly exceeded the cost of the homes built on the land. In places that resisted this political rhetoric, home prices remained reasonable, despite rising incomes and population growth. Construction costs were seldom a major factor, for there was relatively little construction in places with severe building restrictions and skyrocketing home prices.

In short, government has been the principal factor preventing the "affordable housing" that politicians talk about so much.

Politicians have also been a key factor behind pushing lenders to lend to borrowers with lower prospects of being able to repay their loans. The Community Reinvestment Act lets politicians pressure lenders to lend to people they might not lend to otherwise. The same politicians are quick to cry "exploitation" when the interest charged to high-risk borrowers reflects that risk.

The huge losses of subprime lenders, some of whom have gone bankrupt, demonstrate again the consequences of letting politicians try to micromanage the economy.

The world markets are being buffeted by this crisis in America - all due to the credit worthiness of many sub prime lenders and the fact that it appears the rash of bankruptcies by homeowners may cause a credit crunch that would slow growth considerably. There are whispers that the Fed will lower interest rates slightly next month to ease some of the pressure. This would be a welcome move.

It would be even more welcome if politicians would ever learn to stop trying to fix something that already works quite well.