If Schumer really wants to help he can keep his hands off

From The Washington Post:

NO ONE can say how or when the subprime mortgage crisis will end. But the next act will not -- or at least should not -- include Fannie Mae and Freddie Mac riding to the housing market's rescue. That became clear Tuesday when Freddie reported an all-time record quarterly loss of $2 billion, just 11 days after Fannie Mae reported a $1.4 billion loss. It would be nice if the two government-sponsored enterprises (GSEs), which back $4.8 trillion worth of home loans, could help prop up home prices and hold down interest rates. But their own safety and soundness come first.

This is not what leading Democrats in Congress have been saying since the subprime crisis began. Searching, understandably, for a fresh source of short-term liquidity, they have suggested such measures as authorizing Fannie and Freddie to "securitize" larger loans in high-cost housing markets and lifting the limits on their total portfolios that federal regulators imposed after accounting scandals at the two companies. Sen. Charles E. Schumer (D-N.Y.) continues to make that argument. "It should come as no surprise that Fannie and Freddie's businesses have been negatively impacted," he said. That "does nothing to lessen the critical role that the GSEs must play in providing much-needed liquidity to a struggling market."

It doesn't surprise me that a leftist like Sen. Schumer hasn't the faintest understanding of basic economic principles. The reason there is a "subprime mortgage crisis" in the first place is because of government interference in the market.

Activists and legislators looked at the fact that neighborhoods in which the homes are owned by the residents rather than rented have better quality of life by many measures (homes are better maintained, general crime rate is lower, less vandalism, litter and graffiti, lower school dropout rates among the teenagers) and drew the wrong conclusion. In their minds home ownership generated all these positive effects when in reality it is simply that people who are mature and responsible enough to have the earning power to qualify for a mortgage are the kind of people who will keep up their property, supervise their children, obey the law and take pride in the appearance of their neighborhood.

The reason that lawmakers like Schumer completely misunderstood the cause and effect relationship here is that they were required to by their agenda. A legislature can easily use its power to coerce a regulated industry into changing its manner of doing business, in this case forcing lenders to find ways to grant mortgages to people who had a high likelihood of being unable to repay the loans. However a legislature can not wave its legislative magic wand and force irresponsible people to suddenly become responsible.

There is no way for Sen. Schumer to force people to stay in school, show up for work every day on time and do a good job. He can't make the parents of children get married and cooperate in raising their children with love and discipline and take an active part in their education. Schumer and his colleagues can't make people stay off drugs and alcohol. They can't make people life frugal lives and save their money and content themselves with delayed gratification.

As the old saying goes, "if your only tool is a hammer then every problem starts to look like a nail". To lawmakers the "problem" of people who couldn't qualify for home loans looked like something that could be solved with a quick exercise of government power. As is usual in these cases the thoughtless exercise of government power led to distortions in the market which produced ripples (otherwise known as unintended consequences) which upset the stability of the entire industry.

The only solution which government can bring to the current crisis is to undo the original damage and allow lenders to decide who is qualified to receive a loan and otherwise keep their hands out of the marketplace.

Some will point out that there are some lenders who have behaved badly and made the problem worse. That is very true but if I may use a pungent metaphor the current crisis is a great big steaming pile of s*it which the Democrat donkey has left in the street and the dishonest lenders are only the flies which were drawn to it.