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Geithner Concedes Government Incentives Distorted Housing Market

In a speech given Tuesday before the House Committee on Financial Services, Treasury Secretary Timothy Geithner said the government played a role in bringing down the housing market.

Geithner also blamed the government for creating moral hazard and leaving taxpayers responsible for cleaning up the mess.


He said the government made mistakes that were avoidable.

""We allowed an enormous amount of the mortgage market to shift to where there was little regulation and oversight,"" Geithner said.


He continued, ""We allowed underwriting standards to erode and left consumers vulnerable to predatory practices. We allowed the market to increasingly rely on a securitization chain that lacked transparency and accountability. And we allowed the financial system as a whole to take on too much risk and leverage.""

The proposed government reform released two weeks ago outlined methods to reduce government participation in the housing market, and proposed to wind down Fannie and Freddie completely.

""Our proposal for reform breaks sharply from the past to fundamentally transform the role of government in the housing market,"" Geithner said.

And while winding down the GSEs is an important element of the administration's plan to reform housing, it is not the only element.

""These steps alone will not give rise to a housing finance market that meets the needs of families and communities, nor will it guarantee that private markets can effectively play a predominant role,"" he said. ""We must also pursue reforms that restore confidence in the mortgage market among borrowers, lenders, and investors.""

This fundamental change is based on a shift of what many believe is the ""American Dream."" According to Geithner, ""our goal is not for every American to become a homeowner.""

About Author: Joy Leopold


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