The result was a disaster. Not that this was a sufficient condition, but it surely contributed to the debacle in a bad way. The lesson is yet another example of the law of unintended consequences. Trying to do good via indirect methods is very dangerous because the economy is a complex system, and when bad things happen as they often do, there's no accountability, no one in the political system got booted out of office for championing NINJA loans, while investors took it on the chin.
So I found the Federal Communications Commission's press release approving the Comcast's acquisition/merger of NBC Universal as just more of the same:
As part of the merger, Comcast-NBCU will be required to take affirmative steps to foster competition in the video marketplace...Comcast will make available to approximately 2.5 million low income households: (i) high-speed Internet access service for less than $10 per month; (ii) personal computers, netbooks, or other computer equipment at a purchase price below $150...we require Comcast-NBCU to increase programming diversity by expanding its over the-air programming to the Spanish language-speaking community, and by making NBCU's Spanish-language broadcast programming available via Comcast's on demand and online platforms."
As Canada and Belgium know, encouraging language diversity is a bad thing, not a good one, as it doesn't help the minority language speakers, but merely adds to the resentment they feel and separates them further. There's nothing worse than government policy implemented via the back door like this, because it isn't free, it just adds to the already large amount of red tape that piles up on businesses.
Obama himself was one of the lawyers who sued banks for "redlining" back in 1995. Those same banks would soon be pilloried for "predatory lending" to the same groups of people ten years later.
well, a comment was here, and disappeared, but the idea that CRA had nothing to do with the crisis is wrong because of the following. Regulators could not criticize NINJA loans because they were instrumental to achieving the targeted lending goals outlined by these CRA merger issues, statements by the President (Bush and Clinton), the Attorney General, Fannie, etc. When CountryWide dialed this to 11, it was not considered dangerous, rather, the logical implication of these initiatives: some good, more better. You'll read nothing, zero, from the regulators about the declining underwriting standards prior to 2007 because it was consistent with this top-down goal of more lending to traditionally disadvantaged groups. That people sincerely believed that giving houses to poor people was 'good business' jibed with the idea that previous underwriting standards were arbitrary pretexts for racist redlining. They were wrong.
The CRA itself is only a drop in the buckect compared to the entirety of mortgage regulations on the books by the mid-2000's. Certainly one definitive treatment of this subject was penned here in 2009... http://equityprivate.typepad.com/ep/2009/02/dare-ye-inquire-concerning-such-a-wretch.html
But yeah, so far the government hasn't taken much action that indicates they've learned the right lessons from this and they're bending over backwards trying to prevent the market from expressing the lessons it's learned.
It's a form of bribery. Comcast basically bought the votes it needed. Shame on everyone involved.
Markets are wonderful because they harness the power of self-interest to create socially optimal outcomes. Government regulation is bad because it slows down and interferes with the market mechanism -- price controls and taxes and regulations take mutually beneficial exchanges off the table. Government subsidies encourage sub-optimal resource allocation because real social costs are hidden from buyers when they make purchasing decisions.
I thought I had the basic story down pat. But after the recent financial crisis, I discovered I had missed something important. The government can also cause investors to make bad decisions by infecting their minds with do-gooder nonsense. Liberal propaganda is so strong that investors can believe that they are trying to make money while in actuality they are only making sacrifices at the altar of political correctness. The notion of racial equality is so insiduous that when pressured to make more loans to black people, lenders inevitably stop verifying incomes and stop requiring down payments. Liberal activism is so intoxicating that although no one could have rationally foreseen that the housing bubble would pop and damage the entire global economy, activists should have realized that they were doing something bad -- and the proof of this is that the housing bubble popped and damaged the entire global economy.
I've learned a lot of fascinating stuff since late 2008.
The article on the whole was good but i personally feel it should have more precisely written, any ways thanks for your words.
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