Trying to fix what they broke

It's anyone's guess if members of the U.S. House of Representatives will pass the Wall Street bailout they again will vote on today. The measure passed the Senate on Wednesday, boosted in part by tax breaks and other "sweeteners," as The Associated Press termed them. Senators overwhelmingly passed the bill, 74-25. Both of Ohio's senators - Republican George Voinovich and Democrat Sherrod Brown - were among those voting in the majority.

The House is expected to follow suit, but Monday's 228-205 vote against President Bush's bailout came as a surprise, so today's vote is by no means a foregone conclusion. Reps. Jim Jordan, R-Urbana, and Bob Latta, R-Bowling Green, ignored the pleas of the president and House Minority Leader John Boehner, R-West Chester, and voted against the bailout.

Along with hand-wringing to go along with the federal outlay of money has come a push to add more restrictions to lending. Members of Congress essentially now want to outlaw lending practices they legislated.

Whatever happens in the House today, let's remember: The nation's current housing and financial difficulties are largely a result of subprime home loans to borrowers who wouldn't have qualified if they had to meet more conventional, tougher and safer standards.

We find it noteworthy, however, that many of the same people who for decades worked so vigilantly to force lenders to loosen standards now call for clamping down with new, stricter standards.

Seven years ago, White House chief economist N. Gregory Mankiw warned of the dangers inherent in lending to unqualified buyers. But he bucked a trend advanced by those who credited the lowered standards with elevating minority homeownership. Under President Clinton, the federal government systematically pressured banks to grant more mortgages to the poor, even proposing that 50 percent of Fannie Mae's and Freddie Mac's loan portfolio be made up of low- to moderate-income borrowers by 2001.

Suddenly, prudent and longstanding guidelines regarding income level, down payments, income sources and credit histories took a back seat to putting more people who could not afford their mortgages into homes they were destined to lose as soon as the market and economy turned south.

"Given these lending practices mandated by the Fed and encouraged by Fannie Mae and Freddie Mac, the resulting financial problems for financial institutions such as Countrywide and Bear Stearns are not too surprising," writes John R. Lott Jr., the author of "Freedomnomics" and a senior research scientist at the University of Maryland.

Many lenders approved loans that in more rational times would have been unthinkable. The resulting slide into this painful lesson in economics was pushed along by people like Rep. Barney Frank, D-Mass., who criticized Mankiw, "because he is worried about the tiny little matter of safety and soundness rather than ‘concern about housing.'"

For decades, those in government who seek to bestow economic blessings on particular constituencies, whether they are identified by race or economic standing, have interfered with the sound principles of a free market. They've manipulated the system, oblivious to the adverse effects their actions guarantee.

Then, when the damage is done, the same mentality insists on fixing what is broken by selectively cracking down on the evils they themselves unleashed. The mess on Wall Street and the proposed bailout should remind the tinkerers that their intrusions, however well-intentioned, have untoward and unintended consequences. They wouldn't need to pass tough new restrictions or massive bailouts if they hadn't imposed relaxed new regulations. The message here is that there should be less, not more, government meddling.