This is a rush transcript from "Hannity," May 13, 2009. This copy may not be in its final form and may be updated.
SEAN HANNITY, HOST: And tonight in "Your America," it's been almost three months since President Obama signed his so-called stimulus plan and yet the new jobs and the economic turn-around that he promised have yet to come to fruition, and my next guest has written, perhaps, the most definitive book on how we've got into this mess in the first place, and it's called, "The Housing Boom and Bust."
By the way, I think every American needs to sit down and read this. Dr. Thomas Sowell is with us.
Good to see you again, Dr. Sowell. Thank you for being with us.
THOMAS SOWELL, "THE HOUSING BOOM AND BUST" AUTHOR: Thank you for having me.
HANNITY: All right. First of all, just — your overview, before we get into the causes, your overview of the Obama economic plan in the short term and the long-term.
SOWELL: Well, in the short run, they call it a stimulus package, which you can call anything, anything you want. All the data that I've seen on either the lending by the banks, which is less than it was before the TARP money was given to them, or the investments by business, which is less than it was before, the circulation of money, which is slower than it's been in 50 years suggests to me that the fact that you call it a stimulus doesn't mean it can't end up being a sedative.
HANNITY: All right. Does — go ahead. Did you want to finish?
HANNITY: What is the long-term prospects? What do you see, for example, with all that debt that we're going to accumulate, what are the long-term prospects for recovery?
SOWELL: Eventually we will recover. The question is how long is eventually, and what other problems are we going to have such as inflation? You can't spend that kind of money and run up those kinds of deficits without having the money be inflated.
And it's going — inflation really means that no matter what the tax rate is, and no matter how much it's concentrated on, quote, "the rich," unquote, inflation taxes every single person including the poorest person in America. Their money is going to be worth less than it was before.
HANNITY: What about the long-term debt? I keep bringing this question up because I agree. I think we'll recover in the short term. What about the long-term, the $10 trillion in debt, the $1.8 trillion this year? What does that mean for the overall economy in years to come?
SOWELL: Well, it means, for one thing, that our children and grandchildren will have to pay it off. You know at one time they used to say it doesn't matter because we owe it to ourselves.
With more than 40 percent of the government debt is owed to people in other countries, and that means that future Americans, future generations, will have to send trillions of dollars of what they produced to other countries free of charge just to pay off the debt that we're running up right now.
HANNITY: Now we — I think most people agree that the subprime mortgage crisis caused this economic condition. I got to tell you, I love the book. Honestly. I couldn't put it down. And.
SOWELL: Well, thank you.
HANNITY: If you can explain, you know, when it comes to that, you know, who's to blame? We talk about the lenders, government, you know, financial institutions, who do we blame?
SOWELL: Well, there's a lot of blame to go around, but what's crucial to the whole thing is that the mortgage payments stopped coming in, and so whoever created a situation where people were given mortgages that they weren't able to pay. That's who I would blame, and that would be the regulators.
We keep hearing that all of this came about because there wasn't enough regulation. No, it was precisely the regulators who forced the banks to lend to meet government set quotas for people in different income classes and other kinds of quotas, and that's what made the mortgage market so risky.
Now things happened in Wall Street and elsewhere that added to the risk, but the fact of the matter is, if the money had kept coming in from the mortgage payments, that the risk wouldn't have been there.
HANNITY: You know, I tell you, it's music to my ears, because I've been saying the exact same thing, and you're the only economist singing that tune. But, in other words, government regulation wasn't the problem or the lack thereof, it was government regulation that caused it.
You have a quote in the book, you talk about Janet Reno threatened legal action against lenders whose racial statistics raised her suspicions. So explain how they lowered the standards. You go into great specificity.
SOWELL: Well, among other things, they simply gave a quota to Fannie Mae and Freddie Mac as to how many loans of a certain kind they had to make, and that, in turn, meant that the original lenders, the banks, the mortgage companies, could lend to anybody no matter how risky it was, sell the mortgages to Fannie Mae and Freddie Mac, and the banks get their money up front, and the problem becomes Fannie Mae and Freddie Mac's problem, which in turn means it becomes the taxpayers' problem.
HANNITY: Are we moving away from free market capitalism to European socialism?
SOWELL: Absolutely. Even the last figures I saw, the Federal Housing Administration is still making mortgages with less than 4 percent down. Well, that's just asking for it. I mean there's a reason why for many years you had to put 20 percent down to get a mortgage.
You had to have some kind of stake in this thing so you couldn't just stop paying the mortgage and walk on away without no penalty. Now, we have people who have 4 percent penalty, fine. I don't think that's going to do much to make the mortgages secure.
HANNITY: I want to go back into this final question that I have for you because you go into great specificity about what caused the problem, but yet it seems like we're quadrupling down on the very things that you outlined in this book in terms of how we got here.
And that's my great concern is we're going to add national health care to this, Dr. Sowell. We're going to continue this practice of subsidizing mortgages and putting pressures on these lending institutions, so why would we expect any other result than the one that got us into this mess?
SOWELL: There's no reason to. Worse than that, this is not a new thing. This is a bigger mortgage crisis than we've ever faced before. It's not the first. Republicans pushed the same idea in the '20s, Democrats in the '30s, both of them in the '40s and '50s. Every time, it led to large foreclosures.
HANNITY: Yes, well, if anyone wants to know how we got here, "The Housing Boom and Bust," Dr. Sowell, it's always a pleasure to have you. Thank you for being with us.
SOWELL: Thank you.
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