You know the housing bubble that was a big factor in creating the mess we're in?
Let's remind ourselves what Clinton and Bush did:
The meltdown was the consequence of a combination of the easy money and low interest rates engineered by the Federal Reserve and the easy housing engineered by a variety of government agencies and policies. Those agencies include the Department of Housing and Urban Development (HUD) and two nominally private “government-sponsored enterprises” (GSEs), Fannie Mae and Freddie Mac. The agencies — along with laws such as the Community Reinvestment Act (passed in the 1970s, then fortified in the Clinton years), which required banks to make loans to people with poor and nonexistent credit histories — made widespread homeownership a national goal. This all led to a home-buying frenzy and an explosion of subprime and other non-prime mortgages, which banks and GSEs bundled into dubious securities and peddled to investors worldwide. Hovering in the background was the knowledge that the federal government would bail out troubled “too-big-to-fail” financial corporations, including Fannie and Freddie.
And let's remember something about this - it was the political greed of American politicians not the greed of bankers that did the damage. Here's what the Village Voice said back in 2008 about Clinton and Andrew Cuomo, then Housing & Urban development Secretary:
Andrew Cuomo, the youngest Housing and Urban Development secretary in history, made a series of decisions between 1997 and 2001 that gave birth to the country’s current crisis. He took actions that — in combination with many other factors — helped plunge Fannie and Freddie into the subprime markets without putting in place the means to monitor their increasingly risky investments. He turned the Federal Housing Administration mortgage program into a sweetheart lender with sky-high loan ceilings and no money down, and he legalized what a federal judge has branded ‘kickbacks’ to brokers that have fueled the sale of overpriced and unsupportable loans. Three to four million families are now facing foreclosure, and Cuomo is one of the reasons why.
Put simply, forcing banks to lend to people with high risk of default is a really stupid idea. And all the wiffle about social justice doesn't change the facts. Nor does forcing the banks to use "social lenders" make any difference. Yet the Labour Party are proposing just such a policy:
Labour has published proposals for a policy that it says would force banks to lend more in deprived communities and encourage lending through third sector financial institutions.
In an interview with Third Sector, shadow charities minister Gareth Thomas said that proposals in Open Banking: Building a Transparent Banking System, written by him and Chris Leslie, the shadow financial secretary to the Treasury, would require banks to reveal what they lent in each community and to lend a minimum amount in every community.
He said that where banks did not want to do it themselves, there would be an opportunity for them to lend through credit unions or community development finance institutions.
It all sound so lovely. Let's force the evil banks to cough up for regeneration. They can be forced to lend to poor folk in deprived places and everything will be better!
This isn't social justice, it's not redistribution, it's not reinvestment. It's a morally questionable lottery and anyone who thinks giving soft loans to poor people makes any sense needs his head examining.