Thomas Sowell helpfully and succinctly dispels the notion that pure free-market economics led to the collapse. In short: Elected officials such as Congressman Barney Frank and Senator Christopher Dodd “wanted the government to push financial institutions to lend to people they would not lend to otherwise, because of the risk of default”. The mantra was “affordable housing” and the avoidance of “redlining” (whereby loans are denied in circumstances where the financial risk is deemed too great). The problem was the built-in assumption that politicians “can assess risks better than people who have spent their whole careers assessing risks”. Sowell writes:
“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.”
Read the whole thing.