I was walking down the street in San Francisco today and took a peek at the advertisements in a real estate office’s window. Tons of the advertisements said, “Buy this house with as little as 3.5% down by getting an FHA (Federal Housing Administration) loan!” I just shook my head. Have we really learned nothing since 2008?

This much we should all be able to agree upon either because they’re facts or logic bears the concepts out:

1. The Financial Crisis of 2008 had its origins in the housing market.
2. The problems in the housing market had to do with too many people being unable to make payments on their homes. 
3. People were unable to make payments on their homes because they bought houses that cost too much based on their income levels and the amount they were able to put in as a downpayment.
4. For many decades (particularly prior to the 1980’s), market forces determined a downpayment of about 20% showed you were likely be able to pay off your loan and this is what most banks required.
5. Over the course of the 90’s and 2000’s, there was a strong political push to increase home ownership. People with poor credit could purchase homes with 0% down.
6. For decades, Fannie Mae and Freddie Mac operated as a government sponsored enterprises, generating profits for stock holders while enjoying the benefits of exemption from taxation and implied government backing (which they ultimately got). 
7. This allowed private banks to make risky loans and sell them to Fannie Mae and Freddy Mac. The loans would not have been made had Fannie and Freddie been unwilling to purchase them.
8. Fannie Mae and Freddie Mac were the ultimate owners of the vast majority of housing loans. 
9. Nearly four years after the Financial Crisis, the US Government, through the Federal Housing Administration, still insures lenders (i.e. removes the risk to the lender if the borrower defaults on the loan) for loans with down payments of only 3.5% of total borrowing costs.

What’s wrong with this picture? We cannot deny that the story is more complex than this and that individuals, corporations and investors took part in a variety of corrupt and ethically questionable (at best) practices in the midst of this. But these details should not distract from the fundamentals of what, not only allowed these things to happen but actually encouraged them. The fact is, there was a willing purchaser in the form of the government sponsored enterprises.

When you subsidize something you get more of it. The cost of homes skyrocketed during the period of heavy government involvement. Similarly, the more we try to “make college affordable” the more we see their prices go up. (While visiting colleges with my sister my mom remarked that the colleges had vastly changed since her day and looked more like country clubs than the colleges she remembered.) In the case of college education, those left paying the bill are the students who carry mountains of government sponsored debt that they otherwise would have been unable to accrue. In the case of housing, the people left paying the bill are the taxpayers who are bailing out the GSE’s and the banks. 

In both cases it is the people who were intended to be helped the most who are being hurt the most.