Wednesday, December 05, 2007

The Big Brother Time Out Plan

Hillary Clinton and George Bush agree on one point. Contract law can be scrapped if there is political gain to be gained by discarding the rule of law. On second thought, this is also the shared thinking on immigration law. Hillary Clinton and George Bush agree on two points. Michelle Malkin sums it up succinctly: “Behold the bipartisan politics of entitlement”.

Bloomberg: Federal regulators and U.S. lenders agreed to freeze interest rates on subprime mortgages for five years to stem rising foreclosures, said a person familiar with the measure.

The freeze may apply to mortgages issued between January 2005 and July 2007 that are scheduled to reset between January 2008 and July 2010, said a person familiar with the plan. Borrowers whose credit scores are below 660 out of a possible 850 and haven't risen by 10 percent since the loan was sold will be given priority. Those with scores above 660 will be more closely scrutinized to determine whether they are eligible or must continue making payments under existing terms, said the person.

The details are not fully released until tomorrow but any freeze is government interference into the mechanics of a freely entered contract. Any freeze applied selectively based on external eligibility factors is a bad precedent for the rule of law over private transactions. Bad Judgment Joe gets a big brother time out with real dollar savings, while Prudent Peter gets to move immediately onward to higher monthly payments.

Michelle Malkin: Instead of letting lenders and subprime mortgage-holders suffer the consequences of their actions, politicians and grievance-mongers are riding to the supposed rescue. In a supreme irony, the very same champions of the needy in the Democrat Party who complain constantly about the lack of “affordable housing” are now fighting tooth and nail to keep housing prices high…

… Let’s boil this down to fundamentals: Why should the rest of us have to shoulder the burden because some buyers made poor choices, overextended themselves and bought more house than they could afford? Why should other business owners bear the costs of lenders’ failed bets? And why are falling home prices such a catastrophe to be “fixed” in the first place?

The ultimate mortgage industry Ubernerd Tanta is still waiting to see the details but states: “So far, I'm prepared to believe assurances that this will not involve taxpayer subsidies”. I am less willing to extend the benefit of the doubt that tax money won’t come into play, but this is a secondary point. First and foremost, long term decisions depend on the law honoring the good faith in contract agreements. This willingness to tamper selectively in the name of the public good highlights the lack of faith our political class truly have in the ability of the marketplace to work out excess without assistance.