Barack Obama continues to berate Republicans for playing a key role in causing the “credit crisis” by deregulating the mortgage lenders and related institutions. However, if you go back and dig up the truth, you’ll find that the democrats were more concerned with securing mortgages for people who would, under normal market conditions, not qualify. Democrats after all, are largely responsible for the Community Reinvestment Act, which pressured many banks into subprime lending. Many Republicans were genuinely concerned with the actions being taken by Fannie Mae and Freddie Mac.

Though I believe they are a problem in themselves, so long as Government Sponsored Enterprises such as Fannie and Freddie exist, they will need to be regulated. Unlike private enterprise, which is constrained (regulated) by the accountability and pressure of market forces, GSEs operate recklessly with the backing of the government.

This is not to absolve Republican lawmakers. They, along with the Democrats, are missing the larger underlying problem: Monetary policy; specifically, the Federal Reserve’s loosening of credit through means such as artificial lowering of the interest rates. This is what made it possible for the overabundance of lending into the housing market. It was this policy, combined with legislation aimed at lending to unqualified borrowers, that fueled the boom. In a free market, interest rates would not have been that low, and lending would have been tightened. Without the credit introduced into the banking system by the fed, there would have been no air to inflate the bubble.

Absent the CRA and other interventionist economic legislation (subsidized housing), the “easy credit” would have likely found its way into another sector of the economy; perhaps even a sector where Republicans favor subsidies. Neither McCain nor Obama will touch this crucial issue; for lack of understanding or its political inexpediency, I’m not completely sure. Instead, they are both reacting in a way that will only prolong and deepen the economic downturn, as are the majority of our elected officials.

The policy of the Bush administration has been abominable, and I believe they are making all the wrong moves in response to the economic problems; but it is important to realize that this began during the Clinton administration with Alan Greenspan in charge of the Federal Reserve. Clinton was was fortunate to be in office during the inflation of the bubble.