Foreclosed dreams.

• Author: Rothschild, Matthew
• Position: Comment - Column

The foreclosure crisis facing three million Americans and swamping the entire economy right now is the direct result of foolish free market policies. The solution to the crisis cannot be left to that same flawed market.

Nor can it be left to the Federal Reserve Board, which has bailed out Bear Stearns, one of the chief culprits of the crisis, with $30 billion of public money. And the Fed is lending $400 billion at bargain basement rates to other Wall Street firms. But when homeowners themselves need an extra thou or two, the Fed--and the Bush Administration--is nowhere to be seen.

This is socialism for the rich, and relief for the truly greedy.

Let's remember how this crisis came to pass.

It was Bill Clinton who deregulated the financial industry in 1999 by repealing Glass-Steagall, the New Deal legislation that separated banks from other financial institutions. After the repeal, investment banks on Wall Street all got into the act of buying up bundled mortgages. Many of these were sub-prime mortgages that lenders hoodwinked consumers into taking. When the rates jumped, consumers couldn't make their payments. And companies like Bear Stearns, which was neck deep in these shady and shaky loans, began to flounder.

All the while, Alan Greenspan blew hot air into the housing bubble both by keeping interest rates very low and by failing to regulate the unscrupulous lenders.

So today, three million homeowners stand at risk of being hauled out onto the street. The ripple effect is extreme. The value of their neighbors' homes goes down. Consumer confidence gets more rattled. People buy less. The economy contracts. Unemployment grows. And the economy shrinks some more. With spiraling gas and food costs on top of this crumbling foundation, the outlook is bleak.

But it's an outrage that the Fed bailed out Bear Stearns without providing funds to help out homeowners.

"Most of the emphasis is on making sure investors stay as whole as possible and on seeing to it that the companies involved in creating the crisis remain intact," says Allen Fishbein, director of housing and credit policy at the Consumer Federation of America.

While people have been losing their homes at an escalating rate over the last two years, only when a Wall Street blue chip lost its luster did the Fed take any action.

Meanwhile, Washington is doing next to nothing.

Bush has urged banks to voluntarily renegotiate loans with consumers, but Wall Street is not known for volunteerism...