What to Do?

3 September 2007



Subprime Fixes Pit Congress against White House

The president has offered some help to mortgage holders who are in over their heads, but he is ideologically unable to do more than put a band-aid on things. Congress, up for re-election in fourteen months, has less holding it back. Mr. Bush said, “The government’s got a role to play, but it is limited. A federal bailout of lenders would only encourage a recurrence of the problem.” The issue is how limited that governmental role is.

“Moral hazard” is the term economists and businesspeople use to describe the dangers to society of bailing out someone who’s in a financial pickle. However, the hazard varies depending on how the problem arose. After all, someone who is having a hard time because of medical problems is in a different moral boat than someone who’s speculating in property using a “no-income, no job, no assets” loan. The first probably wouldn’t repeat as a potential defaulter, the second probably would.

The problem for both the Democrats in Congress and the Republicans in the White House is time. They need to act quickly if they are going to achieve anything. Foreclosures are already rising, and unless legislation is passed in the next month, that is going to continue. If they take 90 days, well, the worst will have happened.

In future, it might pay to enforce laws on predatory lending, regulate the loan markets a bit more strictly, and ensure that people who are speculating in the markets can actually afford to do so. While one is at it, one may as well wish for a pony, too.

© Copyright 2007 by The Kensington Review, Jeff Myhre, PhD, Editor. No part of this publication may be reproduced without written consent. Produced using Fedora Linux.


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