How Federal Policy Triggered the Mortgage Meltdown

The best way to ensure against future bailouts is to terminate the federal government’s too-big-to-fail guarantees. That’s right: End them, don’t mend them. So long as guarantees are in place, primary lenders, Fannie Mae, Freddie Mac and every other mortgage industry player will continue making loans to large numbers of people unable to pay them back. Risk must be driven by market rather than political forces. Writing on the mortgage meltdown, Barron’s columnist Gene Epstein recently noted, “Crony capitalists love to take foolish risks, dependent as they are on government’s rigged markets, often to the point that they would not be able to cope with free markets if they do.”

Many political leaders, under the guise of “reform,” prefer assigning to government the role of underwriter-in-chief. Frankly, it’s hard to imagine the federal government getting much more involved than it already is...

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