Indirect Effects and the Housing Market

“No very deep knowledge of economics is usually needed for grasping the immediate effects of a measure; but the task of economics is to foretell the remoter
effects, and so to allow us to avoid such acts as attempt to remedy a present ill by sowing the seeds of a much greater ill for the future.” — Ludwig von Mises

Ludwig von Mises's point is well illustrated by the current subprime mortgage crises. As Steve Sailer writes if a bank has a branch in a poor neighborhood the government penalizes the bank if it does not give a large number of (often unprofitable) loans to minorities. As a result, many traditional banks decided to not have branches in poor neighborhoods. This left a market opening for "high pressure boiler room operations" to make high interest home loans in these poor neighborhoods. And the default rate on loans made by such operations is predictably high.

Of course, rather than blaming government for causing the problem, politicians claim that the high mortgage default rates come about due to insufficient government control of the home credit market.