Man-Made Financial Crisis

So, I hear a lot of people slinging blame around for the financial crisis. The banks were greedy and loaned money to people that couldn't pay their debts. The people were greedy and lived beyond their means. The investment banks were greedy and made money by selling investment packages containing the bad loans. The one entity that is escaping a lot of blame is the federal government.

Money first started being used about 3,000 years ago when people got sick of bartering for everything. The day after the first person started using money, the second person borrowed it. In that 3000 years, lenders have learned a thing or two about lending money. What made banks throw all of that knowledge about risk and reward out the window? Federal government intervention.

Because 'underserved' demographic populations were not able to obtain loans as readily as white people with blue eyes, the Federal Government stepped in with Bill Clinton's (A white guy with blue eyes) National Home Ownership Strategy. Basically, home ownership was the gateway to financial freedom and was deemed 'the American Dream'. Who can vote against the American Dream? There were several elements including reducing the cost of building houses, targeting assistance to underserved communities, opening homebuying to underseved populations, but most importantly making financing more available, affordable, and flexible. So, create new financing options, reduce and remove downpayment requirements, and reduce closing costs. Surely the Federal government knows more in their almost 210 years of existance knows more about lending money than lenders have learned in the last 3,000 years.

By bending the rules established by banks and lending institutions, the government made it possible for those people who could not previously get loans to receive loans. It also made it easier for everyone to get a loan, or two, or three. Everyone made money. Houses require lawn mowers, rakes, concrete, drapes, blinds, carpet, appliances, and everything else that makes your house, your home. From this, Home Depot and Lowes thrived, the logging industry and furniture industry made hay. It only made sense for the banks to wrap up the loans and sell them as securities to reduce their risk.

Well, if everyone is buying houses, then the price of houses goes up. So, the cost of the ancillary housing equipment could be rolled into the loan and remain under the value of the house. Since downpayments were a thing of the past, there was little investment from the homeowners into the house. The entire economy grew, until the oversaturation of the market caused housing prices to drop. Those riding the wave were caught with too much debt and the banks were left holding the debt as foreclosures and bankruptcies came through.

So, it is my contention that government intervention got us to where we are today. Further, I believe the market would correct itself if government would remove its impact on the economy. Unfortunately, if there's anything I've learned over the years, it is that the government needs reasons for the population to require its existance.