Right now, it’s very popular with politicians to blame the free market for our mortgage-driven economic woes. It’s also, as with most things popular among politicians, utter nonsense: Fannie and Freddie are Dr. Washington’s monsters, and DC has practically forced lenders to float loans to high-risk borrowers.
Of course, it’s not just in mortgages that the feds have been superheating the market, only to proclaim that they’re saving it every time they do something that will just make matters worse. They’ve been doing that in higher education for decades, delivering or guaranteeing loans targeted at high-risk borrowers, and the current credit “crisis” has done nothing to curb their enthusiasm. Heck, it’s emboldened them to do more.
You might recall something I wrote back in April about the Ensuring Continued Access to Student Loans Act, a fast-moving piece of legislation intended to shield any college student from the possibility that he or she might not be able to get a loan. Among other things, the act increased limits on several federal loans so that students could borrow even more, and loosened the eligibility guidelines for PLUS loans so that parents in significant mortgage arrears could still borrow college cash. It easily passed Congress, pushing significantly more money at ever-greater risks -- and Congress has just extended it to 2010.
And people wonder why lenders make loans to obvious credit risks, and college costs keep on skyrocketing?
Unfortunately, some people in Washington never learn, or worse, know full well that pumping ever more money to big risks is a huge, dangerous distortion, and just don’t care. Case in point, this quote from Michael Dannenberg, senior fellow with the New America Foundation, lauding Senator Obama in a new AP article for proposing a new tax credit program—which includes a make-work “community service” payback piece—on top of all the other federal aid programs:
Michael Dannenberg, senior fellow with the New America Foundation and a former adviser to Sen. Edward Kennedy, D-Mass., says Obama's proposals take the problem of college affordability more seriously than McCain's. And he calls the tax credit a significant innovation.
"McCain's message when it comes to increased tuition is, 'You're on your own,'" said Dannenberg, who has not worked for Obama's campaign. "Obama's message to families is, 'We'll give you more financial aid to help you with college costs, but your kids are going to have to help others.'"
Notice what taking a problem "seriously" means? Offering even more bankrupting government largesse! And who cares about the ultimate bill…until, that is, the reality of “no free lunch” ultimately forces it to come due.
In light of this, nobody, and I mean NOBODY, in Washington had better blame “market forces” for huge cost problems, inefficiencies, or just plain wasted money in higher education. Federal politicians, with their constant bribery of voters and special interests, have made our colossal financial messes, and they haven't got a leg to stand on acting like they are the solution and freedom is the problem.