A crisis created by government's heavy hand cannot be relieved by more government "help." by Peter Namtvedt
(libertarian)
Thursday, January 24, 2008
When the Community Reinvestment Act (CRA) of 1977 was enacted, no one in government had the ability to see what was not seen. Pushing banks and mortgage companies to lend money for businesses and home mortgages that otherwise would have been seen as too risky, made lenders look for other ways to mitigate the risk. They absolutely had to become more creative. In order to protect themselves they first created lending forms that included terms that some borrowers may not have understood (ARMs, options ARMs and variations). But the risks of holding mortgages was still considered too high by the originators of these loans. Other ways of dealing with this were needed.
This had to be in the form of passing on the risk to others. Loans by the thousands that lenders used to retain were sold to others. The buyers bundled them and packaged them to still others. Derivatives were created (like stock options) to entice still more people here and abroad to shoulder the debt.
The house of cards began to fall as the property values bubble started to burst. Loan defaults caused all of the bundles of loans and the derivatives to crash.
Borrowers and lenders alike all began to lose.
Why should the taxpayers of America have to face a higher tax burden and the weight of a larger federal deficit and national debt because of the mistakes of government? I see nothing but favors being given to the banking sector in the proposed solution. A rebate check is not very likely to be spent so as to increase economic activity. What is needed is the lifting of the heavy hand of government!
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