Here are a couple more articles in which non-Objectivists are correctly putting the blame for the current mortgage crisis on government policies, not the free market.

In “Credit Crisis Not a Free-Market Failure“, Thomas Sowell writes:

…Since risky investments usually pay more than safer investments, the incentive is for a government-supported enterprise to take bigger risks, since they get more profit if the risks pay off and the taxpayers get stuck with the losses if not.

The government does not guarantee Fannie Mae or Freddie Mac, but the widespread assumption has been that the government would step in with a bailout to prevent chaos in financial markets.

… If Fannie Mae and Freddie Mac were free market institutions they could not have gotten away with their risky financial practices because no one would have bought their securities without the implicit assumption that the politicians would bail them out.

It would be better if no such government-supported enterprises had been created in the first place and mortgages were in fact left to the free market. This bailout creates the expectation of future bailouts.

In “Reject bailout rush to socialism“, David Littmann writes:

…Washington does not want you to remember the four ways it has brought us to this unfortunate moment. Let’s review:

* The Community Reinvestment Act (approved in 1977 during the Carter administration) compelled banks and other lenders to loan money and grant mortgages in areas where they would have never dreamed of making such loans because of the exceptional risks of default. Banks were denied charters for growth and geographical expansion if regulators found them to be out of compliance with these politically correct regulations, enforced by the Federal Reserve and others.

* Government-sponsored enterprises (such as Fannie Mae and Freddie Mac) received taxpayer subsidies to provide mortgages and are favored by politicians and regulators with the privilege of maintaining very thin capital reserves as buffers against losses that result from defaulting on delinquent mortgages.

* Insane accounting rules, the Sarbanes-Oxley regulatory regime and Securities and Exchange Commission rules have contributed to the mess, especially the devastating “mark-to-market” requirement. The financial reports of firms and financial organizations must carry assets on their ledgers as though they were forced to sell them immediately into distressed markets, rather than at book value…

* And the Federal Reserve spurred subprime lending by pursuing inflationary money policies that dropped bank-borrowing rates to 1 percent.

To avoid greater government involvement and messes in the future (think Medicare, Medicaid and Social Security), Washington must extricate itself from the market. As real estate prices become more affordable, credit-worthy firms and individuals throughout the nation and world are ready to pounce on bargains that will appreciate.

The government got America into this situation. The solution is simple: Government, get out.

I’m heartened to see this idea in circulation. We should continue to stress this point when we discuss this issue with legislators as well as others.

To keep things simple and easy-to-understand, I’ve been using the three key points that Tony Donadio mentioned in his earlier comment:

(1) The current crisis was created by government interference in the housing market.
(2) Further interference will only make things worse.
(3) It is unjust to make innocent people who did not make or take out irresponsible loans pay for the mistakes of those who did.