How the Obesity Crisis Is Like the Mortgage Crisis

DrRich | November 10th, 2010 - 12:32 pm


Q. What’s the difference between a public health expert and an incompetent doctor?
A. An incompetent doctor tends to kill only one person at a time.

The deep recession and jobless “recovery” which we have enjoyed in the U.S. for going on three years now was triggered by the bursting of the housing bubble. The housing bubble was created by lending practices that awarded “subprime” mortgages to people with bad credit ratings, and offered to people with good credit ratings adjustable-rate mortgages (ARMs) that enticed them to purchase more expensive homes than they could afford.

Traditionally, banks were always reluctant to award mortgages, of any flavor, to people who obviously could not afford them, since doing so would wreck their businesses. The reason the banks began making bad loans in the 1990s is that new government policies, chiefly the Community Reinvestment Act, strongly “encouraged” them to.

The banks, being businesses, reacted logically to the new regulatory climate, to threats by ACORN and other activist groups, and to the escape hatch opened for them by the government which allowed them to turn over their toxic mortgages immediately to Fanny and Freddie.  Banks quickly began turning out as many questionable mortgages as they could write, to as many uncreditworthy individuals as they could find.

Fannie and Freddie, in turn, securitized all those bad loans into complex investment instruments, which they released into the general worldwide marketplace. Investors around the world were happy to take these questionable new instruments since Fannie and Freddie, tacitly at least, were backed by the United States government.

And so, when the unqualified homeowners, who never had any prayer of making long-term payments on their mortgages to begin with, proceeded (at the very first and gentlest whiff of a recession) to default on their loans, the whole structure rapidly collapsed, nearly causing a global financial Armageddon.

Thank goodness us U.S taxpayers “volunteered” to clean up the whole mess with our taxes and those of our children and grandchildren.

There’s plenty of blame to go around for causing the mortgage crisis. We can blame all those people agreeing to mortgages they could not afford, the banks pushing mortgage deals on people who clearly did not understand what they were getting into, and Fannie and Freddie infecting the worldwide investment structure with toxic instruments. But the root cause was bad government policy.

Establishing policies that compelled banks to award mortgages to people who could not afford them (in order to advance the noble goal of creating a nation of homeowners) may seem like a compassionate thing to do. But the laws of economics are like the laws of nature. You can’t change them by government fiat. All you can do by fiat is to get people to behave in new and possibly unpredictable ways. And when those irreducible economic laws finally come around to assert themselves, you will be surprised, and likely dismayed, by the result.

As it turns out, setting health policy can have much the same kind of result. If you fail to pay sufficient attention to certain irreducible laws of nature – such as the laws of human behavior, and the laws of human physiology – you may not get the effect you are looking for (or, at least, not the effect you say you are looking for).

And this brings us to the obesity crisis.

Whether or not you agree that obesity is a “crisis” in the U.S., or even that mild to moderate obesity is the medical disaster it’s often painted to be, you’ve got to admit that Americans have gotten substantially fatter over the past few decades. And whether or not our increased corpulence is a grave threat to life and limb, it is creating an opportunity for the government to seize control over our individual freedoms – so it is, in fact, an important phenomenon.

DrRich is not the first to suggest that the public health policies of that very government substantially contributed to our obesity crisis. But as we enter a new era of Progressive healthcare, in which medicine is going to be practiced by policy fiats instead of by individual decision-making, it serves us to remind ourselves just how much the obesity crisis is tied to the great push, instigated by government policies dating back to the 1970s, for everyone to eat low-fat diets.

An association between dietary fats and coronary artery disease was first noted in the 1950s. In 1957, the American Heart Association (AHA) published its first, tentative recommendations for limiting the consumption of saturated fat. The recommendations were specifically aimed only at people who had strong genetic predisposition to heart attacks or strokes, or who already had heart disease. An accompanying editorial by Herbert Pollack, in the August, 1957 issue of Circulation, specifically warned against the widespread application of the recommendation to avoid saturated fat:

“Altering the dietary habits of a large population group is fraught with a great many dangers. Our knowledge of nutrition is not sufficient at this time to anticipate what ultimate results would happen if the public were encouraged to alter radically their basic dietary patterns.”

The AHA’s recommendations regarding saturated fat in the diet received sparse attention for 20 years. Then in 1977 (during arguably the second most Progressive administration in our history), the Senate’s Select Committee on Nutrition and Human Needs, chaired by George McGovern, nationalized the question of fat avoidance. After holding a series of hearings which tied fat consumption to heart disease, the Committee published the first “Dietary Goals in the United States,” advising all Americans to cut back on fat consumption. With this report, the US government officially supported low-fat diets for everyone.  (The public then was judged to be just as stupid as we are judged to be today, so any real effort to distinguish between unhealthy fats and healthy fats was quickly set aside. “Fat is bad” is a message you can sell even to gun-toting Bible-thumpers.)

The anti-fat boulder got a great big push down the hill in 1983, when the Framingham study published a landmark paper tagging obesity as an important risk factor for cardiac disease. Because eating a diet high in fat obviously caused obesity, it seemed self-evident that low-fat diets would prevent heart disease both directly, and indirectly (by preventing obesity).

Accordingly, in 1984 the NIH issued a Consensus Statement entitled “Lowering Blood Cholesterol to Prevent Heart Disease,” which amounted to an all-out attack on dietary fat. Many scientists pointed out that there really was a lack of convincing evidence demonstrating that low-fat diets would be healthful. But the majority, seeing an epidemic of heart disease which must surely be due to fatty diets, outnumbered the reticent ones, and the Consensus Statement was voted into publication. Then, when the AHA abandoned its earlier caution and endorsed this Consensus Statement, the scientific backing for the government’s public policy encouraging low-fat diets for everyone was fully in place.

This action finally ignited the great low-fat diet era. Spurred on by government policy, prestigious medical organizations and others began a campaign of public service announcements and media blitzes. Influential magazines (that is, magazines read by women) began a prolonged onslaught of low-fat diet tips, articles, and human interest stories emphasizing the deadly nature of dietary fat. The food industry, which was at first very skeptical (like the banks when subprime mortgages were initially foisted upon them), finally jumped in with both feet. A massive new product line of low-fat and no-fat snack foods were invented which were just packed with carbohydrates, and often with supposedly “healthy” man-made trans fats. (This major shift in food production has been referred to as the “Snackwell phenomenon.”) The AHA found a lucrative new revenue source officially certifying such low-fat, high-carb products (including Frosted Flakes and Pop-Tarts) as being “Heart Healthy.”

Americans, being filled with the milk of human nature, largely ignored the ubiquitous pleas to abandon their burgers, pizza and tacos in favor of broiled, skinless, sauceless, saltless chicken breasts and broccoli. But they did begin scarfing up the new-age low-fat snack foods in massive quantities, having been assured that, as long as the snacks contained no fat, they could eat as much as they wanted.

There are a few physiological facts about dietary carbohydrates that were largely ignored during the low-fat era. First, the body greedily converts dietary carbohydrates into massive stores of adipose tissue, so indeed you can readily become fat by eating carbs. Second, gorging on the refined carbohydrates found in these new “healthy snacks” causes huge spikes in insulin levels (insulin being a key factor in converting excess carbohydrates to fat).  When the insulin levels suddenly drop a couple of hours later, that drop produces insatiable hunger. So, two or three hours after enjoying a fat-free Pop-Tart or a Snackwell cupcake, one is ripping the cubboards open to find another carbohydrate fix. By thus inducing a continuous-snacking mode, the new high-carb snack foods increased overall caloric intake far beyond the calories listed on their labels.  Third, diets high in refined carbohydrates increase triglyceride levels, reduce HDL cholesterol (“good cholesterol) levels, and in general create lipid profiles that are quite damaging to the arteries.

So, while few people actually stuck to a strict low-fat diet, many, many people became addicted to refined carbohydrates, and as a result became fat.

It has only been in the past five or six years that the low-fat dogma has begun to moderate, largely thanks to the (now mercifully faded) low-carb craze that struck at that time.  We now hear somewhat more reasonable advice about good fats and bad fats, and good carbs and bad carbs. But much of the damage has been done, and at least partially because of the major push for low-fat diets, we Americans are fatter and less healthy than we used to be.

By the way, to this day it has never been shown that low-fat diets applied across the population would reduce the incidence of heart disease.

The low-fat diet policy amounted to a massive public health experiment, with the research subjects being us. Our government and our scientific organizations have yet to apologize for subjecting all of us to this travesty.  Indeed, like the outcome of the great experiment in subprime mortgages, the outcome of the low-fat experiment is not particularly chastening to our Central Authorities. In fact, it works to their advantage.

To see why, consider the final way in which the obesity crisis is like the mortgage crisis. To prevent another mortgage crisis, our government, in its wisdom, did not promise to avoid promulgating any more counterproductive economic policies that will force businesses and individuals to act in harmful ways. (In fact, government policy continues to coerce lending to unqualified individuals.) Rather, they passed massive new “financial reform” legislation aimed at preventing banks and other financial institutions from behaving logically in response to bad government policies. The cure for bad regulation is more bad regulation. And when the results of its own bad regulations created an opportunity to grab even more control over the marketplace, our government lept at the chance.

Similarly, having (probably inadvertently) made policies that resulted in a fatter, less healthy populace, our government is now poised to take advantage of that opportunity, to turn the purportedly grave danger posed to the nation by the obesity crisis into a mandate for assuming powerful controls over the prerogatives of individual Americans.

And now, having learned that, like bad economic policy, bad public health policy can get them to where they want to go, our Progressive leaders are turning their attention to the next great public health initiative. Far from apologizing to us for the damage they caused with their low-fat experiment, they are plotting the next great experiment in public health which they will perform upon the population.

It appears it will have to do with salt.

7 Responses to “How the Obesity Crisis Is Like the Mortgage Crisis”

  1. Tsk tsk, Dr. Rich. I’ll accept your medical advice, but not your financial advice – not just because your’re a doctor, and not a finance professional, but because you don’t seem to understand much about what caused the financial crisis. While I like the back-story on obesity policy that you’ve provided here, I have to point out the flaws in the introduction.

    Banks did not begin making bad loans in the 1990′s. If you’ll recall, the S&L collapse happened just years earlier! No, banks started making bad loans in the 2000′s largely because cheap money and new securitization practices made it easy to make bad loans and sell the risk to others.

    The meme about the Community Reinvestment Act and ACORN is utter nonsense in that it played such a small role in mortgage markets (I was there, writing risk management systems for a Wall St investment bank to manage CMOs, CMBS, RMBS, etc). No, things got out of hand because banks were able to structure non-GSE debt and convince investors that it was AAA. No investor ever lost a penny on GSE debt, as it was implicitly, and then explicitly backed by the government. GSE debt (Fannie/Freddie mortgages) was trading close to or at par throughout the financial crisis. What killed the financial industry was hundreds of billions of sub-prime mortgages that were made by private banks, outside of government programs!

    Financial bubbles and busts are a feature of markets stretching back thousands of years. Don’t confuse politics and reality on this one – the reality of the bubble and bust was cheap money meets excess leverage and has a party. This has happened numerous times in American history. For a primer on all this, I recommend Niall Ferguson’s Ascent of Money:

    • DrRich says:

      Tsk, Tsk, your own self, Praveen.

      I am not excusing the actions of the lenders in the mortgage crisis; indeed, much of what they did was truly evil. I am not even saying that most of the inexcusable subprime loans they wrote were carried out directly under the auspices of the CRA. They were not.

      What I am saying is that , since the time of the original CRA in 1977, both political parties used the awesome power of the federal government to coerce lenders to make mortgages available to borrowers who were financially unqualified. The pressure was applied directly to Freddie and Fannie, and those organizations (along with certain community organizations) in turn, applied pressure directly to the lenders. Once the byzantine system evolved (through the steady application of political pressure) to enable lenders to securitize the toxic loans and get them off their own books, then the lenders dove in head first into a frenzy of the kinds of dangerous fiscal activities to which you refer.

      I am not ignoring the guilt of the greedy lenders. It’s all there for anyone to see. But neither should you discount the constant application of political pressure that enticed the evil capitalists to invent their ugly system in the first place. As I see it, the political pressure was the prime mover, and we ignore that fact at our peril.


  2. Jupe says:

    People were also able to borrow against the artificially inflated value of their home. That didn’t help with the market crash. “Ok…well take my $500,000 house.” “Uh, actually it’s only worth $150,000.”

    I’m trying to find things written well before the crash. You’re not going to like the source, but it’s from 2004.

    “The crash of the housing market will not be pretty. It is virtually certain to lead to a second dip to the recession. Even worse, millions of families will see the bulk of their savings disappear as homes in some of the bubble areas lose 30 percent, or more, of their value. Foreclosures, which are already at near record highs, will almost certainly soar to new peaks. This has happened before in regional markets that had severe housing bubbles, most notably in Colorado and Texas after the collapse of oil prices in the early eighties. However, this time the bubble markets are more the rule than the exception, infecting most of real estate markets on both coasts, as well as many local markets in the center of the country.

    In this context, it’s especially disturbing that the Bush administration has announced that it is cutting back Section 8 housing vouchers, which provide rental assistance to low income families, while easing restrictions on mortgage loans. Low-income families will now be able to get subsidized mortgage loans through the Federal Housing Administration that are equal to 103 percent of the purchase price of a home. Home ownership can sometimes be a ticket to the middle class, but buying homes at bubble-inflated prices may saddle hundreds of thousands of poor families with an unmanageable debt burden.

    As with the stock bubble, the big question in the housing bubble is when it will burst. No one can give a definitive answer to that one, but Alan Greenspan seems determined to ensure that it will be after November. Instead of warning prospective homebuyers of the risk of buying housing in a bubble-inflated market, Greenspan gave Congressional testimony in the summer of 2002 arguing that there is no such bubble.”

  3. Liz says:

    DrRich, thank you for making the connection of how government policies are contributing to the obesity crisis. This is just the tip of the iceberg. Here is another example:

    Numerous other examples are found in books like “Food Politics” and “Appetite for Profit.”

  4. DrPoor says:

    I loath the government telling me how to practice medicine. Policy makers uneducated on the issues on which they make policies have no idea (nor do they probably care) about the unintended consequences of their actions. I can’t wait to see where they go with the salt recommendations. As it stands now I see more problems due to inadequate sodium intake in my physically active “salt conscious” patients than I do over consumption of sodium in my patients with hypertension or heart failure.

  5. I dunno, it seems to be simple calculus to me. Democrats were always in favor of middle class tax cuts, so that aside what is the extra cost in a two year extension of millionaire tax cuts? 140 billion. For that they got 56 billion of unemployment extensions and reduction of payroll tax. All in all not a bad deal considering the alternative of doing nothing at all. Politically, the Republicans have a problem in forcing this issue.

  6. Dear Praveen:

    DrRich’s rebuttal pretty much speaks for itself.

    However, if you have any doubt about the political roots of the housing crisis, and particularly the dominant and guiding role of Democrat politicians and the CRA, you should read “Reckless Endangerment” by Gretchen Morganson.

    As he NYT’s top finance correspondent, she was also ‘there,’ and by virtue of her role had a vastly broader vantage point than you did. Also, she was the subject of a cover story in “The Nation” in 2009, which described her as the ‘most influential financial journalist of our generation,’ so unlike myself and DrRich she is not vulnerable to the criticism of promoting certain ‘memes’ because of an ideological agenda.

    By the way, curling one’s lip and dubbing an argument, a position, or a version of events a ‘meme’ — while refusing to address its particulars, or doing only in passing and unfairly — is the latest media ploy to discredit any viewpoint that contradicts the Gospel of Progressivism.

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