June 11, 2008
A front-page article in Tuesday's Washington Post almost sounded like Ronald Reagan, blaming the government for the sorry state of the mortgage lending industry, and the millions of lower-income families who are at risk of foreclosure. As far back as 2004, the Department of Housing and Urban Development ignored warnings that many borrowers were in debt over their eyeballs, and went right ahead encouraging more subprime loans. From 2004 to 2006, Freddie Mac and Fannie Mae bought $434 billion in mortgage-backed securities to keep the capital flowing. Why? Well, to expand the home-owning middle class, of course! They all vote Republican, don't you know?
(NOTE: Steve Preston replaced Alphonso Jackson as HUD Secretary just last week, with hardly any fanfare. See hud.gov. Jackson resigned amidst charges that he showed favoritism in allocating HUD financing.)
Remember, it was in December 1996 that Fed Chairman Alan Greenspan first warned about "irrational exuberance" in the stock market, but that was because of the herd mentality of Wall Street brokers. In this case, the blame lies with administration officials who were creating a huge distortion in the financial market -- for political reasons! This case is a perfect illustration of the pitfalls of "compassionate conservatism" that President Bush has pursued. Whenever well-meaning government leaders enact some policy aimed at alleviating stress among the less fortunate, the main effect is to encourage more people to get themselves into situations that cause exactly that kind of stress. We would be much better off with a much smaller, less intrusive government that allowed the free market to send accurate signals on the relative scarcity of various commodities and services.
That, in turn, is one reason why the debate over economic policy between John McCain and Barack Obama is so interesting. See today's Washington Post. McCain freely admits he is weak on economics, and in a recession year like this one, the incumbent party is extremely vulnerable to populist or emotional appeals for relief, which may backfire. (See above.) With his penchant for euphoric rhetoric, Obama can hardly help promising the moon, the stars, and the sun to every deserving person in the world. That's why McCain's bold offer to do a series of small-scale debate-forums, which would expose such wacko schemes for what they are, is so commendable. I just hope he does his homework ahead of time. There is a huge opportunity for McCain to show the public how certain imprudent, un-conservative policies of the Bush administration are part of the problem, thereby separating himself from Bush while articulating an alternative conservative reform agenda more like what Newt Gingrich would push.