Rick Nease/ MCT Campus

Why are so many Americans losing their homes?

Who is to blame?

How can we possibly fix it?

These are questions that divide economists, politicians and Americans in general.

Instead of listening to the political talking heads and hoping they are right, let’s independently examine the facts.

For instance, we need to realize that economic policy and social policy, if mixed incorrectly, can have catastrophic consequences for our lives.

A prime example would be the current housing crises.

Many would have the public believe that the free market created this mess and that those “greedy” and “evil” bankers preyed upon the population to enrich themselves.

To an extent this is true, but Americans who fell for the trick of adjustable rate mortgages and other loan scams should have read the fine print before they signed their names to the contract.

Nobody was forcing home buyers to enter into mortgage contracts.

Are we or are we not adults who are responsible for our own actions?

However, the “greedy” bankers would never have been able to pillage the public without the necessary financial tools provided by (take a guess) the U.S. government.

They are the cause of our current housing nightmare in which millions have been losing their homes. Not the free market.

Back to housing.

It will be argued that problems with the current housing crisis have their origins all the way back in the ’90s with the reformation of a bill passed by Congress in 1977 entitled The Community Reinvestment Act.

What this revision did was force banking institutions to lend to small businesses and low-income/low credit-score residential housing borrowers.

Surely this was a social policy aimed at helping those less fortunate, but it was also the beginning of our current housing nightmare.

The law created a market distortion of higher demand for housing mortgages.

Since many Americans who couldn’t qualify for home loans previously now became candidates, this started the artificial and now infamous “bubble” in real estate asset prices.

Banks were being mandated by law to lend to more mortgage applicants that ran a greater risk of loan default.

This lead to an ever increasing number of defaulting “toxic” mortgages.

Also, banks could lend recklessly because they had the safety net provided by the government sponsored enterprises Freddie Mac and Fannie Mae that guaranteed bad loans.

Why not lend to everybody and over-leverage your lending reserves if you know the government will back whatever bad deal you make by passing those costs on to the taxpayer?

However, that was only one part of this sad saga.

Another integral part of this mess was the repeal of the depression-era Glass-Steagall Act lead by Bill Clinton’s economic advisers Larry Summers and Robert Rubin.

The repeal acted as a tool to loosen lending standards, because the laws forbidding banks to make certain types of risky bets were abolished.

Also, now there was a blurring in bank rules that mandated a bank could only be a commercial bank, (like Wachovia) or a brokerage firm, (like Goldman Sachs that can invest heavily in speculation betting.)

Commercial banks could now own and operate brokerage firms that invested heavily in the mortgage markets.

This eventually led to defaulting mortgage assets that infected the balance sheets of not only the brokerage firms, but (since the repeal of Glass-Steagall), commercial banks.

So let’s fast forward and see what has happened.

The treasury secretary of the previous administration was Henry Paulson, former head of the premier and politically connected Wall Street brokerage firm Goldman Sachs. Paulson’s former employer made bad bets over the last few years and was integral in negotiating that the U.S. taxpayer should foot the bill for Wall Street’s bad bets.

Through their political contacts, the $700 billion bailout for gambling brokerage firms was passed.

Why should the taxpayer pay for the bad bets of brokerage firms?

Under the new administration, the president’s chief economic adviser is Larry Summers, the same man who disbanded the Glass-Steagall Act to create bank over-leveraging and the housing bubble.

This man now directly advises the president on how to save the economy.

Once again, the free market did not cause this housing issue, the government did.

How could the same people who created the environment necessary to mandate low lending standards, speculative investing and the real estate boom and bust be able to fix it?

Insanity is defined as doing the same thing and expecting different results.

Let’s look at the facts.

After this whole episode of government interference in the markets, why would people be demanding more government?

One last thought: if the free market would have been allowed to operate and the government wouldn’t have interfered by repealing the Glass-Steagall Act and forcing banks to make loans to risky borrowers, would the housing bubble and crash ever have happened in the first place?

That’s for you to decide.