Wednesday, May 7, 2008

Fed Support for a Bad Idea...

First, Rep. Barney Frank proposed government intervention into reducing the actual principal balances of some home loans. Now, the Fed Chairman is touting a somewhat similar idea.

Ultimately, this is a dangerous legal and regulatory spiral to enter into. After all, how do you decide who gets this benefit. And, what about the millions and millions who responsibly took out mortgages that they could afford and continue to repay:
It wasn't the first time Bernanke called for lenders to accept steep cuts in loan repayment or for government to step in to slow the pace of foreclosures. He first broached both ideas in a speech in March.

But coming just as Congress was about to take up the foreclosure issue, the central banker's remarks appeared designed to answer critics of intervention who argue that the two steps run the risk of rewarding financial bad behavior by borrowers and would involve trampling the legal sanctity of contracts.
Read the whole LA Times article here.