By Andy Jackson

I watched the U.S. vice presidential debate last Friday morning, Korea time, at a local bar that had been rented out for that purpose. (In a nice show of bipartisanship, the event ended up being cosponsored by the local organizations of Republicans Abroad and Democrats Abroad.)

Both candidates did well. Palin was especially strong on energy issues, which is hardly surprising given her experience as chairwoman of the Alaska Oil and Gas Conservation Commission and chief executive of an energy producing state. Biden also generally did well, demonstrating his decades of experience in the Senate.

In short, both candidates showed that they are ready to serve as vice president.

However, I could not help but be disappointed by the answers the candidates gave on the current financial crisis in the United States, which threatens to undermine Korea's economy as well.

When asked if ``greedy lenders" caused the current financial difficulties in the United States, both candidates jumped at the chance to pounce on a familiar whipping boy.

Palin attacked ``predator lenders" who exploited people and ``greed and corruption" on Wall Street. (To her credit, she at least mentioned that people should be responsible for their own finances.)

Biden jumped in also, saying that the government had ``let Wall Street run wild" and called for more government control of the financial industry.

I know this may come as a shock to some folks in government, including Palin and Biden, but banks prefer to lend money to people they know will be able to pay it back. It took over a decade of government action to warp that economic reality.

Far from a case of capitalism gone wild, the scope of the current financial crisis is a Frankenstein primarily created by the government.

The Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation, known respectively as Fannie Mae and Freddie Mac, are government-created institutions that control about half of all mortgages in the United States. Their main function is to purchase mortgage contacts from local banks, freeing those banks to use their capital to make more loans.

In the early 1990s, Department of Housing and Urban Development (HUD), under a mandate from Congress, started pressuring Fannie Mae and Freddie Mac to purchase the contracts of more mortgage holders with below median income in their communities.

By 2005, HUD's goal was for 52 percent of Fannie Mae and Freddie Mac contracts to be below median income mortgage holders and for 22 percent of their contracts to be reserved for those who earn less than 60 percent of their communities' median income. The risk was hidden somewhat by having many of those loans made at the prime rate.

So why did the banks make these risky mortgages in the first place? Fannie Mae and Freddie Mac provided the pull; the Community Reinvestment Act expansion of 1995 (CRA) provided the push.

Fannie Mae and Freddie Mac's mandate to purchase more risky loans created an incentive for local banks to provide them since those banks could quickly pass the risk to the two government-backed institutions.

CRA required banks to provide loans to more high-risk applicants as a means of increasing home ownership.

Aside from the risks inherent in these loans, the easy credit and the resulting influx of home buyers started pushing up the price of homes, helping to create a housing market bubble.

Even more perversely, CRA poured government money into political pressure groups like the Association of Community Organizations for Reform Now (ACRON), which in turn used its political muscle to pressure banks into making loans that they otherwise many not have made.

The Bush administration also has to share some of the blame. Faced with a slowing economy in 2001 and the economic effects of the 9/11 terrorist attacks, they failed to do enough to correct the problems with Fannie Mae and Freddie Mac and contributed to the housing bubble by maintaining easy credit.

With easy money being pumped into the housing market and the resulting rapid rise in housing prices, the mortgage-backed securities looked like a sure thing, attracting investment banks like Bear Stearns, which first got into the business of securitizing CRA loans in 1997. The implied government backing of those mortgage-backed securities (made explicit by the bailout package recently passed by Congress) made those securities appear risk-free.

The government could have averted the worst of the current crisis as late as 2005, but a bill created to reign in the excesses of Fannie Mae and Freddie Mac (S. 190) was killed by Senators with political and financial ties to those institutions.

The US government certainly did not create the financial crisis by itself, but it took government action to take the situation from a low ebb in the business cycle to a seismic event that threatens to undermine America's financial system.

Of course, that is a lesson that the United States should have learned from the Korean experience. Collusion between the government, corporations and the banking industry was a major factor in the ``IMF" financial crisis of the late 1990s.

Hopefully America's lesson will not be as painful.

Andy Jackson teaches American government in the Lakeland College bridge program at Ansan College, Gyeonggi Province. He can be reached at andyinrok@yahoo.com.