Everybody and his brother has a favorite scapegoat for the current subprime mortgage meltdown and burgeoning foreclosure rates plaguing homeowners. Social critics blame unfettered capitalism for the crisis, although financial markets have been heavily regulated for decades. Others take a more cynical view and pin the blame on human greed, pure and simple. But the story is far more complex.

Just a few years ago, lending institutions were spending considerable time in courtrooms, accused of practicing so-called redlining, predatory lending, and discrimination. Bankers were not making enough loans to minorities, low-income households, and families with bad credit. A number of studies showed that white buyers were given preferential treatment when it came to obtaining a loan. A superficial examination of the records seemed to indicate a clear bias toward white couples. But the more detailed facts showed that minorities, even if they earned similar incomes as whites, were often delinquent in paying back loans. Bad credit history was the real headache. Banks wanted to make loans, but they were not in the charity business. To lenders, bad credit meant either no loan or higher interest to cover higher risks.

But this explanation did not satisfy social justice and housing advocates. They pressured Congress to encourage lenders to make easy loans to make home ownership available to everybody. Soon the federal government was in the forefront of initiating laws and adopting rhetoric to assist low-income, high-risk borrowers with generous mortgage programs, often enticing home buyers into loans they could not afford. The legislation included the American Dream Down Payment Act in 2003, which authorized the distribution of $200 million a year to help low-income families with down payments and closing costs. President Bush explicitly told federal agencies to loosen up or eliminate regulatory barriers to affordable home ownership.

Meanwhile, Fannie Mae and Freddie Mac, both government-sponsored enterprises that subsidize credit through the U.S. Treasury, got into the act.

According to Kathleen Hays at CNNMoney in 2005, "Fannie and Freddie have blazed the way for competitive mortgage products that have helped to revolutionize the mortgage lending industry in ways that the more conservative, less innovative banks had not in the past."

Banks and mortgage lenders followed the government's lead. But the easy-money lending practices had unintentional consequences. People were flipping properties and lying on loan applications in order to speculate. In fact, one loan expert confessed that in over 60 percent of the subprime loans, the applicant fraudulently stated income as twice the real amount.

Eventually, the market could not sustain both higher prices and enough qualified buyers. Like all economic disequilibriums, the bubble had to burst; the pendulum had to swing back the other way. And now, instead of 'fessing up to what they have wrought, beltway politicians are pointing their accusing fingers at lenders for making low-income loans.

Interestingly, back when lenders argued that minority borrowers were unqualified and had poor credit histories, they were accused of discrimination for giving out too few loans. But after the lending industry finally relaxed loan qualifications for low-income minorities, they are now being accused of racial disparities for giving out too many loans. In a 2008 federal lawsuit, the NAACP sued 14 of the nation's largest lenders for saddling bad-risk and minority borrowers with high, unaffordable interest rates.

True to their political theater background, a host of lawmakers are back on center stage trying to redirect governmental agencies to stack more legislative controls on an industry already suffering under a heavy load. The bruised and battered monetary markets only required more time to readjust, heal and self-correct the excesses. Lenders already have lost tens of billions of dollars, suffered liquidity problems, and been put through a squeezing credit crunch. They will never again dispense "no documentation" loans like candy to children at a birthday party.

Ironically, it was the gold rush for easy-money mortgages earmarked for low-income families that contributed significantly to the collapse of the housing market and that is now preventing new low-income borrowers from borrowing while facilitating a growing wave of home foreclosures for those who did. But if government attempts to become an economic "fixer" instead of a "referee," the lending business might as well be run by political directive instead of normal lending practices.

If these political opportunists succeed in handcuffing the lending business to stricter federal regulations, perhaps only the wealthy with high credit scores will be able to get a home loan. This scenario harkens back to the days when the only people who could get a bank loan were those who didn't need one.

© Copyright 2008 by Libertarian Party of California