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Obama administration promotes junky, risky mortgages at taxpayer expense, ignoring history’s lessons
George Mason University Professor Ilya Somin explains how the Obama administration is expanding the awful policies that caused the mortgage crisis, like having taxpayers effectively underwrite risky-mortgage loans by bailing out GSEs at a cost of hundreds of billions of dollars. Now, the administration is stepping up Federal Housing Administration subsidies for risky, junky mortgage loans that are likely to default in large numbers.

(The Obama administration doesn’t seem to have learned history’s lessons overseas, either. White House Communications Director Anita Dunn cites as her favorite political philosopher the Chinese communist tyrant Mao Zedong. That may explain why it has sometimes pursued left-wing policies overseas.)

President Obama is also pushing for financial regulations that reinforce the worst features of the status quo. They would increase pressure on lenders to make the risky, low-income loans that helped spawn the financial crisis. At the same time, they would worsen the credit crunch by shutting down banking operations known as “industrial loan corporations,” that are convenient for consumers. Earlier, Obama backed a new law that is wiping out many credit-card rewards programs and rebates, and leading to the return of annual fees on some credit cards.

Even though Obama’s proposals would lead to even more junky loans in the future, both he and Senate banking chairman Chris Dodd (D-CT) claim that his proposals would fight the “status quo.” But they are part of the status quo. Dodd is famously corrupt, having received sweetheart loans from the reckless, bankrupt subprime lender Countrywide, and having received a massive gift from a crook, Edward Downe, in the form of a luxurious “cottage” in Ireland he received in a “cut rate real estate deal” for hundreds of thousands of dollars less than fair market value. Obama was the third biggest recipient in Congress of campaign contributions from the government-sponsored mortgage giants Fannie Mae and Freddie Mac, which went broke, costing taxpayers perhaps $200 billion. (Fannie Mae was a corrupt bully that engaged in massive accounting fraud and used intimidation to fight reform.)...