Thomas Sowell on the subprime loan implosion:

Politicians have also been a key factor behind pushing lenders to lend to borrowers with lower prospects of being able to repay their loans.

The Community Reinvestment Act lets politicians pressure lenders to make loans to people they might not lend to otherwise – and the same politicians are quick to cry “exploitation” when the interest charged to high-risk borrowers reflects that risk.

The huge losses of subprime lenders, some of whom have gone bankrupt, demonstrate again the consequences of letting politicians try to micro-manage the economy.

Yet with all the finger-pointing in the media and in government, seldom is a finger pointed at the politicians at local, state and national levels who have played a key role in setting up the conditions that led to financial disasters for individual home buyers and for those who lent to them.

While financial markets are painfully adjusting, and lenders and borrowers are becoming less likely to take on so much risky “creative” financing, politicians show no sign of changing.

Why should they, when they have largely escaped blame for the disasters that their policies fostered?

I don’t quite agree with Sowell here. He’s right in some aspects but we must remember that markets get stupid sometimes. The subprime lending market has been compared to the dot-com bubble and the comparison is very apt. A lot of banks knew they were acting stupidly and are paying the price.

Of course, where there’s dumb ideas, there are even dumber ones and a truly idiotic idea floating around right now is that the government should bail out the subprime mortgage lenders or, even worse, the borrowers themselves. Democrats in particular have been promulgating this piece of pander.

It’s a terrible idea. The market has to correct. If it doesn’t, we will get even worse loans made and the industry will completely explode in about 2012. Right now, it’s just taking the Dow Jones with it. We subsidize this nonsense and it might take down the entire banking industry.

Let the forest fire burn. We need to clear out the dead wood of bad loans.