Today it was announced that banks foreclosed on 288,345 houses in the past three months, the highest amount of foreclosures in any three-month period since 2006. It’s estimated that 1.2 million homes overall will be foreclosed in 2010. Well, gee, looks like government bailouts of the financial industry have paid off! Despite hundreds of billions of dollars in bailouts, piles of regulatory codes, and vastly expanded government power, the pinch on Main Street is tightening and more people are losing their homes. It makes you wonder, how did all this happen in the first place and why hasn’t increased government intervention solved the problem?
Since the early 20th century it has been the initiative and policy of the federal government to lower the price of housing so every single family could own a home. Other arrangements that would commonly arise in a free market (such as renting) just don’t fit into the government’s version of the “American dream.” One of the first to lobby for governmental support of individual home ownership was President Herbert Hoover. On July 22, 1932 Hoover signed the Federal Home Loan Bank Act, and he explained the purpose of the bill “is to establish a series of discount banks for home mortgages.” In other words, the federal government would help organize the mortgage loan industry and provide cheaper loans for people to obtain, thus increasing home ownership. Hoover went on to explain:
“In the long view we need at all times to encourage homeownership and for such encouragement it must be possible for homeowners to obtain long-term loans payable in installments. These institutions should provide the method for bringing into continuous and steady action the great home loaning associations which is so greatly restricted due to present pressures.” — Herbert Hoover (Emphasis added.)The “present pressures” of course being the Great Depression, an eensy-weensy economic slump that resulted in banks giving out fewer loans. Still, Hoover thought this was an appropriate time for government to encourage people to buy a house even if the economy was in dire circumstances. So began the history of the federal government’s intervention in the mortgage market, often subsidizing or forcing banks to lower their lending standards and give loans to people regardless of their ability to pay them back. ( CONTINUE READING ARTICLE )
