Barney Frank Should Resign

A point we have been emphasizing for some time is that the implosion of the US capital markets was caused by federal regulations interfering with the market. Thomas Sowell writing today nails if far more succinctly than me:

“Our current economic meltdown results from the federal government, under both Democrats and Republicans, declaring home ownership to be a "good thing" and treating the percentage of families who own their own home as if it was some sort of magic number that had to be kept growing-- without regard to the repercussions on other things. We are now living with those repercussions, which include the worst unemployment in decades. That is the price we are paying for increasing home ownership from 64 percent to 69 percent.”

“Federal regulatory agencies leaned on banks to lend to people they were not lending to before-- or else. The "or else" included not having their business decisions approved by the regulators, which could cost them more money than making risky loans.

Mortgage lending standards were lowered, in order to raise the magic number of home ownership. But, with lower lending standards, there were-- surprise!-- more mortgage payment delinquencies, defaults and foreclosures. This was a problem not only for banks and other lenders but also for those in the business of buying mortgages from the original lenders. These included semi-government enterprises like Fannie Mae and Freddie Mac, as well as Wall Street firms that bought mortgages, bundled them together and issued securities based on the anticipated income from those mortgages.

In other words, all these economic transactions were "interconnected," as the Russian economists would say. And when the people who owed money on their mortgages stopped paying, the whole house of cards began to fall.”

To sum up: the Federal government played Russian roulette with the US economy in an effort to get people who could not afford to own homes to own homes, and the economy got shot in the head. There were a whole host of Federal busy-bodies responsible for the fiasco, but our own Barney Frank was clearly the most prominent. He should resign out of simple embarrassment, but the sad fact is he does not even realize he caused the problem. Perhaps voters can explain it to him in the 2010 election.

Read Mr. Sowell’s entire article here.

For more on the topic, read Frank's fingerprints are all over the financial fiasco and this.

Author: Mark