Wednesday, May 21, 2008

There is an interesting article in the Washington Post this morning by Walter Williams, an economics professor at George Mason University. Williams cites The Community Reinvestment Act of 1977 as the, or one of the causes of the current "Sub-Prime Crisis". The Act encouraged banks and savings institutions to make the so called "no doc" and "Liar" loans that are now so frequently in default. His point being that most problems in America are caused by Government actions, which are often well intentioned. The Government adopted, in the 70s, a policy that every American should own his or her own home. In theory this is a wonderful idea, but in actuality it can't happen without Government subsidizing home purchases. Instead of providing the subsidy the Government simply mandated the dream and hoped that it would become a reality. It worked for a while, but markets and economies do not exist in a vacuum. Things change! And so it was with the housing market. The moral of the story, the Government should stay as far away as possible from mandating things it can't deliver on, like lowering gasoline prices.