HOW GOVERNMENT STOKED THE MANIA

Many believe that wild greed and market failure led us into this sorry mess. What's missing is the role politicians and policy makers played in creating artificially high housing prices, and artificially reducing the danger of extremely risky assets, says Russell Roberts, a professor of economics at George Mason University.:

• For 1996, the Department of Housing and Urban Development (HUD) gave Fannie and Freddie an explicit target -- 42 percent of their mortgage financing had to go to borrowers with income below the median in their area; the target increased to 50 percent in 2000 and 52 percent in 2005.

By pressuring banks to serve poor borrowers and poor regions of the country, politicians could push for increases in home ownership and urban development without having to commit budgetary dollars. Another political free lunch, says Russell.

What can we learn from this, asks Russell? Beware of trying to do good with other people's money. Unfortunately, that strategy remains at the heart of the political process, and of proposed 'solutions' to this crisis...

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