Free markets are still the answer

A great piece by Terrence Corcoran. Once again we discover that the current crisis is because of regulations !

Where did the U.S. subprime mortgage boom come from? In the early 1990s, the Clinton administration asked the U.S. department of housing to come up with a National Homeownership Strategy. Working with private and public institutions, the strategy was to "achieve an all-time high level of homeownership in America within the next six years." Plans included innovative schemes to streamline transaction costs, bring in creative financing rules, ease land assembly and get money for mortgages into the hands of people who had no money.

To fulfill the American Dream it advocated, among other things, "financing strategies, fueled by the creativity and resources of the private and public sectors," to help home buyers who lack cash to buy a home or get income to make down payments. By the Bush years, the program had ballooned to encompass dozens of initiatives, including the American Dream Down Payment Fund and the Home Investment Opportunity Program.

The strategy worked, says Joseph Mason, associate professor of finance at Drexel University LeBow College of Business. "It worked really well. Some might say too well." U.S. home ownership rose to record highs by 2007. But it was a strategy that promoted risk, and when coupled with financial engineering wizards, the risks multiplied.

If there's a backlash to come, maybe it will hit business. But maybe it will turn--as it should--against the massive regulatory regimes that already exist