Here We Go Again

In the early 1990s, two Federal Reserve studies on mortgage lending were held up by proponents of interventionist government as proof that banks were discriminating against minorities. The government swung into action with lawsuits against allegedly discriminatory lenders, HUD started pressuring Fannie Mae and Freddie Mac to target the “underserved,” and the Community Reinvestment Act was enhanced to pressure lenders into lowering their lending standards. A decade later, the housing bubble, which was fueled by short-sighted government policies, burst and the financial well-being of many minority families crumbled along with it.

In a bad case of déjà vu, it’s being reported that “regulators will be bringing pressure on banks to make greater efforts to serve poorer communities after an FDIC survey showed that more than a quarter of U.S. households have little or no financial activity through banks.” This language is eerily similar to language employed in the 1990s that fueled liberal housing loan practices we now know were downright foolish. The recent news report continues:

The survey, conducted through the Census Bureau, found that 25.6 percent of the nation’s households – representing some 60 million adults – are ‘unbanked’ or ‘underbanked’… minorities, particularly African Americans, are disproportionately part of this group. More than half the black households fell into the two categories.

‘Access to an account at a federally insured institution provides households with an important first step toward achieving financial security – the opportunity to conduct basic financial transactions, save for emergency and long-term security needs, and access credit on affordable terms,’ FDIC chairman Sheila Bair said in a statement.

It used to be the “undeserved” in the housing market who supposedly needed the government’s help. Now it’s the “underbanked.” We were told that government involvement was necessary to make housing more “affordable.” Now the government is saying access to credit needs to be more affordable.

A lot of establishment analysts oppose term limits on Congress because they claim that we need experienced leaders to deal with today’s complex policy problems. But government officials stubbornly refuse to learn from their own mistakes, as we’ve seen over and over since the housing bust.