Someone once said that Senator Hubert Humphrey, liberal icon of an
earlier generation, had more solutions than there were problems.

Senator Humphrey was not unique in that respect. In fact, our present
economic crisis has developed out of politicians providing solutions
to problems that did not exist-- and, as a result, producing a problem
whose existence is all too real and all too painful.

What was the problem that didn't exist? It was a national problem of
unaffordable housing. The political crusade for affordable housing got
into high gear in the 1990s and led to all kinds of changes in
mortgage lending practices, which in turn led to a housing boom and
bust that has left us in the mess we are now trying to dig out of.

Usually housing affordability is measured in terms of how much of the
average person's income it takes to cover either apartment rent or a
monthly mortgage payment.

There were certainly places here and there where it took half a
family's income just to put a roof over their heads. Many such places
were in coastal California but there were a few others, here and
there, on the east coast and elsewhere.

But, vast areas of the country in between-- "flyover country" to the
east coast and west coast elites-- had housing prices that took no
larger share of the average American's income than in the decade
before the affordable housing crusade got under way.

Why then a national crusade by Washington politicians over local
problems? Probably as good an answer as any is that "It seemed like a
good idea at the time." How are we to be kept aware of how
compassionate and how important our elected officials are unless they
are busy solving some problem for us?

The problem of skyrocketing housing prices was all too real in those
places where this problem existed. When you have to live on half your
income because the other half goes for housing, that's a real downer.

Almost invariably, these severe local problems had local causes--
usually severe local restrictions on building homes. These
restrictions had a variety of politically attractive names, ranging
from "open space" laws and "smart growth" policies to "environmental
protection" and "farmland preservation."

Like most wonderful-sounding political slogans, none of these lofty
goals was discussed in terms of that one four-letter word that people
do not use in polite political society-- "cost."

No one asked how many hundreds of thousands of dollars would be added
to the cost of an average home by "open space" laws, for example. Yet
empirical studies have shown that land-use restrictions added at least
a hundred thousand dollars to the average home price in dozens of
places around the country.

In some places, such as coastal California, these restrictions added
several hundred thousand dollars to the price of the average home.

In other words, where the problem was real, local politicians were the
cause. National politicians then tried to depict this as a national
problem that they would solve.

How would they solve it? By pressuring banks and other lenders to
lower their requirements for making mortgage loans, so that more
people could buy houses. The Department of Housing and Urban
Development gave the government-sponsored enterprise Fannie Mae quotas
for how many mortgages it should buy that were made out for people for
low to moderate incomes.

Like most political "solutions," the solution to the affordable
housing "problem" took little or no account of the wider repercussions
this would entail.

Various economists and others warned repeatedly that lowered lending
standards meant more risky mortgages. Given the complex relationships
among banks and other financial institutions, including many big Wall
Street firms, if mortgages started defaulting, all the financial
dominoes could start falling.

These warnings were brushed aside. Politicians were too busy solving a
national problem that didn't exist. In the process, they created very
real problems. Now they are now offering even more solutions that will
undoubtedly lead to even bigger problems.

http://townhall.com/Columnists/ThomasSowell/

Fannie Mae plans bonuses of $1M for top executives; Freddie Mac has
similar plans

http://finance.yahoo.com/news/Fannie...-14679491.html

Impeach Barney Frank!