AP
Former President Bill Clinton waves to supporters after campaigning for Democratic presidential nominee Barack Obama at the University of Central Florida in Orlando, Fla., Wednesday, Oct. 1, 2008.
Back in the 1990s subprime loans came under heavy fire. Affordable (not free market-valued) loans to low income borrowers were in short supply. Media pundits and officials railed against practices as innocent as considering a borrower’s credit history, ability to make a down payment and employment status. Various newspapers were attacking banks for discriminating against minorities.

The problem was that minorities on the whole were more likely to be lower and middle income earners than whites. Lower income earners are traditionally prone to having bad credit histories and not being able to pay off mortgages. Despite this obvious connection, the government came to believe it should play an active role in helping lower income people, especially minorities, become homeowners. Yet, as economist Paul Krugman of The New York Times pointed out, homeownership isn’t for everyone. Often there are very good reasons that people choose to rent.

Unfortunately, government policies have continually pushed to get more middle and low income families to be homeowners, in hopes of fulfilling the American dream.

One of the politicians leading the homeownership-for-all charge was Clinton’s HUD (Housing and Urban Development) director Andrew Cuomo. After taking office in 1997, Cuomo demanded that more loans be made available for unqualified applicants, and pushed Fannie and Freddie (quasi-private government-sponsored entities designed to help the mortgage market) to have 50 percent of their mortgages be for low and moderate income families. Racial overtones continued to be pushed. Cuomo’s top aide told The Washington Post, “We believe that there are a lot of loans to black Americans that could be safely purchased by Fannie Mae and Freddie Mac if these companies were more flexible.”

Even as borrowing standards were being relaxed, liberal activists were pushing for more. In a 1999 article in The New York Times, former Clinton official Franklin Raines (chairman and CEO of Fannie Mae at the time) was quoted as saying, “Fannie Mae has expanded home ownership for millions of families in the 1990s by reducing down payment requirements … there remain too many borrowers whose credit is just a notch below what our underwriting has required who have been relegated to paying significantly higher mortgage rates in the so-called subprime market.”

Inevitably, this contributed to looser standards in general.

The same article by The New York Times goes on to say, “Fannie Mae, the nation’s biggest underwriter of home mortgages, has been under increasing pressure from the Clinton Administration to expand mortgage loans among low and moderate income people and felt pressure from stock holders to maintain its phenomenal growth in profits.”

The phenomenal growth in profits, which led to so many political cronies reaping millions, could only be fueled by an endless rise in housing prices.

People did protest against the looser standards and the economic stupidity in general. In the same New York Times article, a member of the conservative American Enterprise Institute, Peter Wallison, warned that the government would have to step in and bail Freddie and Fannie out like the Savings and Loan crisis of the 1980s. Others concurred, yet were shouted down or simply ignored. Investors bet that in case the house of cards come crashing down, the government would always be there with taxpayer money, ready to be the hero. Now the American public is going to see if the prophecy will be fufilled and the government will don its cape to swoop in for the rescue.

Jack Millman can be reached at [email protected].