he Democrats' Recession
Written By John R. Lott Jr.
Published November 17, 2008
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The media focuses on the drop in housing prices, consumer purchases or stock prices as the cause of economic problems, problems that they view as unrelated to Democratic policies.
The financial problems seem obvious. Democrats have been the ones pushing for federal regulations that forced financial institutions to make risky loans either though the threat of penalties from the Federal Reserve or through subsidies from Fannie Mae and Freddie Mac. They protected Fannie Mae and Freddie Mac from regulations
While Barack Obama claims that he fought for more financial market regulation, the regulations that he wanted would not have stabilized the markets -- quite the contrary. He supported regulations that went after so-called predatory lenders who were charging too high an interest rate to poor, risky borrowers. Forcing banks to charge even lower interest rates to these risky borrowers would have meant even more problems, not fewer ones.
The regulations that mandated little or no down payments to risky borrowers posed little problem as long as housing prices rose, but when house prices started to fall, it meant that many people just walked away from mortgages that were worth more than their houses.
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