Political Solutions for Political Problems

There is very little if anything that angers me more than to see an American citizen get excited to see a politician make a speech about how they are going to fix the problems of our nation. Problems that those knuckle headed politicians caused or was a big part of in the first place! In the next couple posts I will talk to you about the current financial crisis that politicians blame non-regulated predatory lenders for causing. In addition we will look at a couple other examples of politicians wanting to fix problems they caused to begin with.

Politicians love to take advantage of the weak brain of so many American Citizens. Politicians tell us that lending companies who participated in "lucrative" lending practices are some how villains for taking advantage of everyday Americans. Today these "lucrative" companies are now losing millions and some billions of dollars while others are going out of business! Pray tell me how it makes sense to say that a company is going to take advantage of individuals in the loaning business when they know that if those individuals can not make their payments that those lenders too will be hurt just as bad or worse and go out of business? Only a liberal moron would think that is possible.

As Thomas Sowell has recently written about in his recent column that is published in hundreds of magazines and newspapers nationwide, it was not too long ago that there was outrage in Washington and other political capitals over "redlining." This is the practice of banks and financial institutions not lending or approving mortgages in some neighborhoods. Black neighborhoods in particular were questioned. It is true that while 89% of white mortgages were being approved only 72% of black mortgages were being approved. Due to this there was a campaign to get lenders to lend to people that in a true free market, would not be given loans. It is common sense for individuals to only lend in some areas and not in other areas where it is dangerous or there is great risk in not getting that loan back. If politicians want to call that "redlining" then so be it. That does not negate the fact that it is common sense to behave that way.

As far as racial differences it might be good to step back and study whether black and white is the real reason for not receiving loans. Income, credit history, and net worth are three of the prime factors in determining whether a person gets a loan or not. If different groups of people or ethnicity of people are different in those prime categories, there could be great disparities in regards to loan approvals that have NOTHING to do with whether their skin is dark or white. In fact Whites must settle for sub prime loans more often than do Asians. Whites are in fact turned down for conventional mortgage loans more often than Asians. Is this due to racism you think? Funny how the news media never covers these differences but only those of White and Black differences. These prime factors mean a lot to business owners trying to make profits but matter very little to politicians trying to get VOTES.

These laws and regulations that politicians have put on lending institutions have caused the current problem we see today in our financial markets. The Community Reinvestment Act forced many of them to lend in places where they did not want to send their money. This is because the cost of doing business in neighborhoods where neither they nor the politicians wanted to WALK much less start a business would be so high that profits would vanish. Companies are also less likely to want to lend to people they feel will not have the resources to pay in full for the loan they give them. But government has a way of pressuring companies to do just that and this Community Reinvestment Act was only one of the laws that did this.

Other laws and pressures as well as incentives cause lending institutions to lend to people who they otherwise would choose not to lend to in a true free market. In part II of this blog I will explain the economics of this and how it has caused the current problems we have today. We will also examine a couple other political solutions that have caused these same types of problems in the past and continue even today.