from Barron’s, The Road to Ruin by Thomas Donlan


The U.S. learned nothing from the financial crisis. The biggest problem perceived today in the Obama administration is that the rate of home ownership is at the lowest level since 1989. Like those of the Clinton and Bush administrations, current officials talk continually about the social benefits of homeownership.

“Responsible homeownership remains a pillar of the economy and society,” said the secretary of Housing and Urban Development at a conference last week. The secretary, former San Antonio Mayor Julian Castro, built up the benefits of equity: “For a great many people, buying a home is the best way to build wealth. For some, it may be their only vehicle for building wealth.”

Here we go again, confusing cause and effect: People who purchased homes in ancient times by working and saving to make 20% down payments made themselves strong, and many of them chose to buy homes in communities that were already healthy. The government and banking policies of the past 25 years tried to reverse the flow of logic.

The second-best option has been offered by Mark Calabria, director of financial regulation studies at the Cato Institute: Freddie should be regulated like banks or like insurance companies, not as specially privileged, overleveraged political creatures.

“If we could get Fannie and Freddie to be only as risky as Citibank, it would be a big improvement,” Calabria says.