Wednesday, May 22, 2013

"Bouncing ball politics"

What's bouncing ball politics? Thomas Sowell explains this brilliant metaphor:

If you are driving along and suddenly see a big red rubber ball come bouncing out into the street, you might want to put your foot on the brake pedal, because a small child may well come running out into the street after it.

We all understand that an inexperienced young child who has his mind fixed on one thing may ignore other things that are too dangerous to be ignored. Unfortunately, too much of what is said and done in politics is based on the same tunnel vision pursuit of some "good thing," in utter disregard of the repercussions.

For years, home ownership was a big "good thing" among both liberal Democrats like Congressman Barney Frank and Senator Christopher Dodd, on the one hand, and moderate Republicans like President George W. Bush on the other hand.

Raising the rate of home ownership was the big red bouncing ball that they pursued out into the street, in utter disregard of the dangers.

A political myth has been created that no one warned of those dangers. But among the many who did warn were yours truly in 2005, Fortune and Barron's magazines in 2004 and Britain's The Economist magazine in 2003. Warnings specifically about the dangerous roles of Fannie Mae and Freddie Mac were made by Federal Reserve Chairman Alan Greenspan in 2005 and by Secretary of the Treasury John W. Snow in 2003.

Many, if not most, of the children who go running out into the street in pursuit of their bouncing ball may have been warned against this by their parents. But neither small children nor politicians always heed warnings.

Politicians are of course more articulate than small children, so the pols are able to not only disregard warnings but ridicule them. That was what was done by Congressman Barney Frank and Senator Christopher Dodd, among many other politicians who made the pursuit of higher home ownership rates the holy grail.

In pursuit of those higher home ownership rates, especially among low-income people and minorities, the many vast powers of the federal government -- from the Federal Reserve to bank regulatory agencies and even the Department of Justice, which issued threats of anti-discrimination lawsuits -- were used to force banks and other lenders to lower their standards for making mortgage loans.

Lower lending standards of course meant higher risks of default. But these risks -- and the chain reactions throughout the whole financial system -- were like the traffic ignored by a small child dashing out into the street in pursuit of their bouncing ball. The whole economy got hit when the housing boom became a housing bust, and we are still trying to recover, years later.

2 comments:

Joseph Angier said...

Yup. The economic crisis of 2008 was caused by liberal do-gooders forcing banks to provide mortgages to undeserving people. This was a lame idea pushed by the John Stossels of the world a few years ago, and it's depressing to see that it keeps popping up. Credit-unworthy home-buyers played a (small) part in the crisis, but the real mess was caused by the banks who made securitization of these bad loans into a big industry ... And they did all that without the help or encouragement of Barney Frank, Paul Krugman, Chris Dodd, or any other liberal Thomas Sowell cares to mention.

Thomas Moore said...

Well I do understand that banks and others helped create the problem we have to put the people going out getting the big red ball as a part of the problem as well. I mean you need and have to know what you can and can't afford. i worked in banking and several clients go upset when I suggested that buying a home or at a particular price would not be in there best interest. Some people just wanted to get what they wanted.