All you need to know about the Obama financial plan

Arnold Kling at EconLog:

Once upon a time, there was a summer camp. To entertain the kids, the counselors handed out matches[1], lighter fluid[2], and newspapers[3]. The camp burned down.

Afterwards, a white paper was written, proposing more supervision by counselors. It called for a systemic counselor to watch out for camp-wide fire hazards, and it called for procedures to put out fires that are “too big to let burn.”

The white paper was written under the direction of two counselors, Larry and Tim, with input from another counselor, Ben.

The end.

[1] housing policy that encourages speculative purchases and subsidizes mortgage indebtedness

[2] tax policy that encourages banks and other firms to maximize debt relative to equity

[3] bank capital regulations that reward securitization and the creation of off-balance sheet entities

I would just like to add — Einstein once defined insanity as “doing the same thing over and over again and expecting different results.” I think that gives us the right adjective to describe the following white paper excerpt:

The appropriate response to the crisis is not to weaken the CRA (Community Reinvestment Act); it is rather to promote robust application of the CRA so that low-income households and communities have access to responsible financial services that truly meet their needs.

I heard that some guys tried to use government to implement the whole “to each according to their needs” thing 90-odd years ago; how’d that work out?

(By the way, I am in favor of meeting the needs of low-income households and communities. But market competition, not government fiat, is the way to do it; see Gary Becker’s work on the economics of discrimination.)

— Chris

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