Mozilo's almost 20-year-old quote is relevant again thanks to the uproar New York Mayor Michael Bloomberg caused last week when he criticized Occupy Wall Street's view of the financial crisis.Government distorted the market, with predictable results. My solution to so many of these problems is not to create more regulation and give government more power to distort, but to lessen government power. The market will correct itself. Sometimes that correction isn't pleasant, but how pleasant is the current return to stagflation brought on by government failure?
Bloomberg said, "it was not the banks that created the mortgage crisis. It was, plain and simple, Congress, who forced everybody to go and give mortgages to people who were on the cusp. ... They were the ones who pushed Fannie and Freddie to make a bunch of loans that were imprudent, if you will."
The usual suspects on the left went crazy. The New York Times Paul Krugman called Bloomberg an "ignoramous," citing liberal blogger Mike Konczal's Fannie defense:
"The first thing to point out is that the both the subprime mortgage boom and the subsequent crash are very much concentrated in the private market ... [Fannie and Freddie] were not behind them," Konczal said.
Is Konczal right? Are Fannie and Freddie innocent of causing the mortgage crisis?
This we do know: Thanks to the widespread belief that the federal government would bail them out, Fannie and Freddie were able to borrow money at below-market interest rates.
This gave them a significant competitive advantage over private-sector firms which, by 1992, the two government-backed corporate entities had turned into an almost 70 percent share in the mortgage securitization market...
From 1992 through the height of the housing bubble, Fannie Mae and Freddie Mac used their monopoly position in the mortgage securitization industry to reward firms like Countrywide for making bad bets in the housing market. Countrywide's success was a signal to other market participants to lower their standards as well.
Wall Street banks are not blameless for the financial crisis. But they were only responding to the incentives set up by the federal government. Ignoring this history will help no one.
You get more of what you subsidize. With TARP and auto bailouts we've subsidized failure, and we will certainly get more of it. We're 3-4 years into this now, almost 3 years under President Obama's "steady hand" at the leviathan of state. Has anything improved? Are certain companies still "too big to fail"? What has the taxpayer gotten for his "contributions" to these bailouts? How is the average citizen better off?
Government is much more of the problem than it is the solution. And when you have a president as steeped in socialist ideology as is our current president, you get predictable results both in the economy and in the electorate:
President Obama's ratings on the the most important issue for his re-election -- the economy -- have posted the weakest showing of his presidency, according to a poll released Friday by CBS News.
About 60 percent of voters said they disapprove of Mr. Obama's handling of the economy, the highest on record. Just 34 percent approve of the job he is doing on the matter.