What do ethanol and the subprime mortgage meltdown have in common? Each is a good reminder of that most powerful of unwritten decrees, the Law of Unintended Consequences - and of the all-too-frequent tendency of solutions imposed by the state to exacerbate the harms they were meant to solve.
The linked op-ed discusses how the subprime crisis stems from the Community Reinvestment Act of 1977 under which banks were graded on their attractiveness to the “credit needs” of “low and moderate income neighborhoods.” The higher the rating, the more lenient the regulations for opening a new branch or undertaking an acquisition. This pressured banks to make increasingly risky home-loans to borrowers with poor credit who typically would not meet the proper credit requirements, aka subprime borrowers.