Good Intentions with Mushy Thinking

Thomas Sowell’s article entitled “The Housing Boom and Bust” gives a short summary of his analysis on how the government had set the stage for the disaster in financial institutions through the imposition of legislations affecting housing markets. His analysis is published in the book of the same title. Sowell (2009) held that “the current economic crisis grew out of policies based on good intentions and mushy thinking.”Sowell (2009) explained that government policies and legislations regarding home ownership led to the disaster in the financial markets following many people who are unable to make their mortgage payments. These policies and legislations were intended to make the American dream of home ownership more widely available by increasing home ownership among minorities and people of low or moderate incomes. Politicians have introduced policies of lending quotas set by the government. Being unable to meet the quota would mean that banks will not be able to gain an approval from government regulatory agencies on opening new branches or enlarging their financial operations.As a result, Sowell (2009) explained that politicians have pressured banks to lend people with lower incomes, poor credit ratings, or who have little or no money to be used for the conventional 20 percent down payment of owning a house. Sowell (2009) further explained that “monthly mortgage payments by millions of home buyers were what provided the money for the banks, the financial institutions that bought mortgages from the banks, and the Wall Street firms that created sophisticated securities based on those mortgages.” Approving loans to the “the undeserved population” has proven to be a disastrous risk that the financial market has faced because of the pressure from government policies.ReferenceSowell, T. (2009). The housing boom and bust. The Jewish World Review. Retrieved May 18, 2009, from http://jewishworldreview.com/cols/sowell042909.php3