Government policies rooted in a flawed understanding of the causes of the financial crisis will only make future crises more likely, according to the Chairman of the House Financial Services Committee.

At an event sponsored by the American Enterprise Institute on Wednesday, Rep. Jeb Hensarling spoke glowingly of AEI scholar Peter Wallison’s new book, “Hidden in Plain Sight: What Really Caused the World’s Worst Financial Crisis and Why it Could Happen Again,” which makes the case that government policies, not private sector excesses, were the main cause of the financial collapse.

Hensarling asserted that, “History has been kind to the Left, mainly because they wrote the history of the financial crisis,” and that this has led to misguided policy responses like the Dodd-Frank banking reforms.

“If you read the wrong history,” he explained. “You come up with the wrong remedy, and Dodd-Frank is the wrong remedy.” (RELATED: Is Congress Creating Another Financial Crisis?)

The conventional liberal narrative, according to Hensarling, is that the financial crisis came about due to excessive deregulation in the financial and housing markets, but as he went on to note, “regulations increased 17 to 18 percent immediately prior to the crisis.” In fact, he added. “I’m not sure there’s ever been an industry as heavily regulated as housing.”

“We [in Congress] will continue to work on creating a sustainable housing policy,” Hensarling vowed, but “we cannot move forward until we have a shared understanding of what went wrong.”

“Everybody knows that the financial crisis was caused by a mortgage meltdown,” Wallison told audience members, but while the prevailing wisdom has it that Wall Street greed led to the housing collapse, “the facts show an entirely different story,” which is that, “government policies created the demand for those mortgages” in the first place.

For decades, he noted, the housing market was relatively stable, because Fannie Mae and Freddie Mac dealt almost exclusively in so-called “prime” loans, which required down payments of 10 to 20 percent, good borrower credit histories and low debt-to-income ratios.

In 1992, however, the Department of Housing and Urban Development began requiring Fannie and Freddie to meet a quota of loans to low- and moderate-income borrowers, starting at 30 percent of their annual acquisitions and gradually rising to 56 percent by 2008. (RELATED: Holder’s Legacy: Double Punishment of Financial Crisis Victims)

To meet the quotas, the two government-sponsored enterprises (GSE’s) were compelled to reduce their underwriting standards, taking on increasingly risky “subprime” loans in order to satisfy federal officials. And with the GSE’s standing by as ready buyers for subprime loans, banks in turn were encouraged to lower their lending standards, as well.

“This is not a defense of banks or the private sector, nor is it partisan,” Wallison cautioned, noting that Presidents Clinton and Bush both presided over the growth of the housing bubble, and that the private sector shares some of the responsibility for making the bad loans that fed the bubble.

Currently, though, Wallison averred that, “We are dealing with a narrative that puts no blame on government, and that’s what I’m fighting against,” because backed by that interpretation, “government is doing the exact same things today that it did before the crisis.” (RELATED: FINANCIAL CRISIS: Government Keeps Pushing Mortgage Guarantees as Risk Index Rises)

“Instead of focusing on promoting economic growth, we made the financial sector into a whipping boy” with the Dodd-Frank Act, which Wallison called “easily the most restrictive regulatory law since the New Deal.”

“Because the American people don’t understand the policies that caused this crisis,” he summarized, the government has responded by doubling-down on those very policies, putting the country on a path toward a repeat of the “Great Recession.”

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