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Another Take on the Housing Crisis

Former Treasury and Reagan official blames faulty lending rules, not insufficient regulations

DURHAM, N.C. -- A lack of financial regulations didn’t spark the Great Recession, as commonly stated, faulty government housing policies created the disaster, said Peter Wallison, a senior fellow at the American Enterprise Institute.

Economist Peter Wallison “The government had followed terrible housing policies” that led to the crisis in 2008, Wallison told an audience during a lecture Tuesday at Duke Law.

This included lowering the borrowing standards that allowed too many people to take out subprime mortgages they eventually couldn’t afford, resulting in massive defaults and failed banks, he said.

Wallison, a dissenting member of the Financial Crisis Inquiry Commission, said Congress did not want to acknowledge its role in the crisis. Lawmakers’ push for expanding home ownership among an increasing number of low-income Americans resulted in weaker lending standards, which contributed to the crisis of the late 2000s, he said.

Wallison writes about the financial crisis in his 2016 book “Hidden in Plain Sight."

“Congress wanted to act like the cause was insufficient regulations so (it) adopted Dodd-Frank” in 2010, said Wallison, a former general counsel of the Treasury Department and former White House counsel to President Reagan.

The Dodd-Frank Wall Street Reform and Consumer Protection Act essentially bolstered regulation of the financial industry to help prevent another meltdown. President Trump has said he plans to roll back the law.

Wallison said Dodd-Frank has led to restricted economic growth and lower rates of income growth. He added that another crisis could happen if conditions – and policies – do not change.

He noted that many Americans -- “not on the two coasts” -- have felt the pinch of this economy that has seen only around 2 percent GDP over the past several years. During Reagan’s presidency, Wallison said GDP hit 6 and 8 percent in some sectors.

This lack of economic growth and income stagnation may have created the void Donald Trump filled in his campaign for president, he said, noting the widespread anger and malaise candidate Trump tapped into.

“A lot of people seem think if (Trump) lifts the wet blanket from regulations” we will have an economic boom rather than continued low growth, he said, adding: “That’s what the stock market is saying.”