Friday, July 15, 2011

California to Waste Taxpayer Money Grandstanding Over Housing Crisis

Apparently waging a destructive and economically illiterate war on businesses in California isn't enough for state Attorney General Kamala Harris these days. The LA Times reports that Harris is considering taking that war to the national stage, by joining the attorneys general of New York and Delaware in a new investigation of Wall Street lending practices leading to the 2007-09 real estate collapse. In announcing her intention to explore this option, Harris inadvertantly revealed its real goal, which is to grab more cash for broke states by shaking down banks: "California was disproportionately harmed by the mortgage crisis, and our homeowners badly need relief. We will critically evaluate every possible avenue of relief for Californians. If it will result in real accountability and real results, no option will be off the table." In other words, the states are likely viewing legal action against banks in the same light that they viewed tobacco lawsuits in the mid-1990s: as a massive slush fund that can be used for any state spending priority other than its intended purpose.

We'll start off by saying that we feel badly for the thousands of Californians who've lost their homes in the recession. We'll also say that we have no problem with prosecuting cases of genuine fraud. But, as fans of our review of the Inside Job film can probably guess, we're convinced that a witch hunt on Wall Street is at best a waste of time and taxpayer money, and at worst a way of whitewashing the guilt of the true culprits. If your investigation is going to deliberately ignore the three decades or so of federal policy intended to degrade lending standards, and if you find it incomprehensible that years of easy money from the Greenspan Fed could have anything to do with the risk preferences of lenders and borrowers, you probably aren't going to find much beyond a lot of crony capitalism and entrepreneurial error. That is, of course, assuming that the whole exercise is anything other than a show trial aimed at securing cash for states.

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