Here we go again. The Wall Street Journal reported last week that the Federal Reserve Bank has released a 25-page report to top lawmakers on the congressional banking committees encouraging Congress to get more involved in housing policy.
According to the Journal, "The Fed also signaled support for more aggressive use of Fannie Mae and Freddie Mac to support a housing recovery." Of course! Because that worked so well last time.
It was the Fed's easy money policies, which followed government efforts to get very low-income families in a house that many couldn't afford, that helped create the housing bubble-and the economic recession that followed.
In the early 1990s, Congress revised the Community Reinvestment Act to expand home loans to lower-income workers. By the mid-1990s, Fannie and Freddie lowered their lending standards to meet required low-income loan goals. One way they did that was by buying mortgage-backed securities (MBS) from investment banks, which saw a chance to make money in a fast-moving and mostly unregulated market.
This government-induced house of cards came tumbling down in 2007-08, and taxpayers have kicked in nearly $150 billion to pay for the mess. Apparently having learned nothing from the past decade, and especially the last four years, the Fed is encouraging a 2012 redo.
Historically, there has been a concerted effort to keep politics out of the Fed, but that day will come to an end if the Fed doesn't keep out of politics.