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Of course, if race and financial assets are correlate (as they are), then insisting on assets as a precondition for a loan could look a lot like racism; the variables are confounded. The response was predictable. Why be so “rigid” about assets? These communities “need” these loans. And so the unraveling continued.

Going along with the political pressure, as the Chevy Chase Bank had done, would “buy them friends in high places,” according to the American Banker. New York Times financial columnist Peter Passell, who is now with the Milken Institute, said that banks would find “that the path of least political resistance is simply to shovel enough money into minority projects to make the regulators go away.” Congressional Democrats increased the pressure for politically subsidized loans.

Mortgage risks could be passed on to the secondary mortgage market by Fannie Mae and Freddie Mac in Washington, D.C., backed by an implicit federal guarantee. They would buy up these mortgages, call them “assets,” and sell them to investment bankers who believed that they were worth a lot more than they turned out to be. Like a Ponzi scheme, it seemed to work for a while, but when house prices began to decline everything fell apart.

In recent years, the great political promoter of the Ponzi scheme has been the chairman of the House Financial Services Committee, Barney Frank. Fannie and Freddie showered Democrats, and to a lesser extent Republicans, with campaign contributions. They have invested in politicians. Since 1989, Connecticut’s Sen. Chris Dodd has been the top recipient; more recently, one Barack Obama.

The truth is that the nation’s financial system has been run for many years with a great deal of irresponsibility. There is far too much reliance on credit, for one thing. People should be encouraged to save money, not to rely on loans at every turn. But what

happens to savers? The government allows the dollar to fall, year after year, thereby repudiating its debts. Prices rise, and savings buy less and less. The Republicans have sometimes been worse than the Democrats in this regard. GOP treasury secretaries are inclined to think it is their job to help business, and so they imagine that a sinking dollar will encourage exports. Bad policy.

Meanwhile, the puny interest we may receive on savings accounts will be taxed away as unearned income (one more opportunity to punish “the rich”). But if we go into debt with a mortgage, inflation will erode the value of what we owe and we get a tax break into the bargain. When are they going to reverse this, with savings encouraged and debt discouraged? It’s high time.

Tom Bethell is a senior editor of The American Spectator.