Bush and the housing mess

“We absolutely wanted to increase homeownership. But we never wanted lenders to make bad decisions.” -- Tony Fratto, deputy White House press secretary quoting President Bush

The New York Times over the weekend had a fascinating article about the Bush Administration's role in creating the disaster that is the housing market. The whole thing is really a must-read and while I don't want to quote selectively, the article can perhaps be best summarized by this excerpt:

For much of Mr. Bush’s tenure, government statistics show, incomes for most families remained relatively stagnant while housing prices skyrocketed. That put homeownership increasingly out of reach for first-time buyers like Mr. West.

So Mr. Bush had to, in his words, “use the mighty muscle of the federal government” to meet his goal. He proposed affordable housing tax incentives. He insisted that Fannie Mae and Freddie Mac meet ambitious new goals for low-income lending.

Concerned that down payments were a barrier, Mr. Bush persuaded Congress to spend up to $200 million a year to help first-time buyers with down payments and closing costs.

And he pushed to allow first-time buyers to qualify for federally insured mortgages with no money down. Republican Congressional leaders and some housing advocates balked, arguing that homeowners with no stake in their investments would be more prone to walk away, as Mr. West did. Many economic experts, including some in the White House, now share that view. The president also leaned on mortgage brokers and lenders to devise their own innovations. “Corporate America,” he said, “has a responsibility to work to make America a compassionate place.”

What we see is an administration and president that professes fealty to the free market but in practice does nothing of the kind, instead practicing a philosophy in which the government is used as a lever to achieve desired social outcomes.

The housing market is a textbook case. Upset with the workings of the free market and driven by woolly-headed notions of creating a more "compassionate" society, President Bush set about using government policy and funds to achieve desired results. As I have written before, this is akin to shooting the messenger. The marketplace merely presented a message -- that X percentage of people were able to own their homes -- and Bush basically shot it by saying that it wasn't good enough and deciding that government distortions needed to be put in place.

Then what followed were a bunch of unintended consequences. Some people that normally wouldn't be homebuyers became homeowners -- of course in many instances that's because they shouldn't have been homeowners in the first place. Other people that were capable of owning smaller homes bought more than they could afford with the government assistance. Assistance with closing costs and tax incentives helped drive demand -- and prices -- even higher.

This is not at all surprising. The government sought to improve education by expanding the federal role and education standards have declined. The government sought to eliminate poverty and instead expanded government dependence. The government sought to expand home ownership and helped blow up the housing market.

Anyone see a pattern here?

Update: This column, meanwhile, argues that the NYT story is another example of media bias and points out that it is absurd to blame Bush alone for the housing market. That is absolutely correct. But the fact remains that the administration didn't exactly cover themselves in glory either.