How Government Failure Caused the Great Recession — The American, A Magazine of Ideas

There are many reasons why the financial crisis erupted however, the principle reason is the US central government has inserted itself into many many facets of American's everyday economic life. This meddling takes many forms but the net result is that it changes incentives and distorts decision making. But particularly egregious is the leviathan forcing the mortgage guarantee companies to carry out public policy that ultimately will cost taxpayers around $1 trillion to solve.....

The enlargement of the riskier subprime and Alt-A mortgage markets by Fannie and Freddie through the abandonment of proven credit standards (e.g., dropping proof of income requirements) during the 2004-2007 period, and their combined accumulation of a $1.6 trillion portfolio of these loans to meet the affordable housing goals Congress mandated. As of mid-2008, government entities had purchased, guaranteed, or compelled the origination of 19 million of the 27 million total U.S. subprime and Alt-A mortgages outstanding.

As we see in this article, government has created an environment where normal credit standards were dropped due to government interference in the market in addition to multitudes of other interventions that have destroyed value instead of creating it.

How Government Failure Caused the Great Recession — The American, A Magazine of Ideas