As I have stated over and over, the sub-prime problem is not a problem of banks being dumb or consumers being dumb but in fact the government (in this case the Congress) is being self-interested and rational. They want to maximize their votes and in order to do that they make big promises. As Walter Williams points out in his recent article “Congressional Problem Creation” the government constantly regulates and creates a problem and then naturally they believe the solution is more regulation.
“The Community Reinvestment Act of 1977, whose provisions were strengthened during the Clinton and Bush administrations, is a federal law that mandates or intimidates lenders to offer credit throughout their entire market and discourages them from restricting their credit services to high-income markets, a practice known as redlining. The Community Reinvestment Act encouraged banks and thrifts to make so-called “no doc” and “liar” loans to customers who had no realistic ability to pay them back. A decade of monetary expansion by the Federal Reserve Bank, contributing to the housing bubble, encouraged lending institutions to take risks they otherwise would not have taken. Government actions created the subprime crisis and now government-proposed “solutions,” such as foreclosure holidays, bailouts and further regulation of financial institutions, to the problems they created will create more problems.”
He goes on to talk about the energy industry and how we as Americans have been in a strangle hold by the regulations trying to create our own energy supply. People often blame the oil companies but in fact it isn’t their fault at all.
Red tape increases costs for businesses which are directly reflected in either those on the margin going out of business or prices being raised on the consumers.