Coyote Blog

A few years ago I coined the term "Intellectual Welfare."  I originally devised he term to describe Social Security, where it was arguable that most people in the program were not receiving a transfer payment, but they were instead receiving for-your-own-good government restriction of individual choice.  In the case of Social Security, government takes over the management of some of our retirement savings (at an appalling cost) because we lunkheads can't be trusted to manage our own savings for ourselves.

I was going to prepare a similar post about cries for regulation in the sub-prime credit market, but Alex Tabarrok did it already:

Roubini and others generating hysteria about defaults in the
mortgage market are credit snobs - they think credit is something that
only the rich can handle.  Just look at the language that Roubini uses
to analogize borrowers - they are "reckless patients" who "spent the last few years on a diet of booze, drugs and artery clogging junk food."  Similarly, the Washington Post tells us that it's the end of the "borrowing binge."

Yeah, we get it.  Credit is ok for us, the "sober" borrowers but poor people can't
handle credit.  Too much credit among the poor generates decay and
social pathology.  Credit must be regulated.  We can't, for example,
have credit stores in poor neighborhoods.  Don't you know that credit is bad for people without self-discipline?   Let the poor buy on installment credit?  That's unconscionable.  Today's furor over sub-prime mortgages is the same old story.

Update: This really ticks me off:

Representative Barney Frank, the Massachusetts Democrat who heads
the House Financial Services Committee, said in an interview on Friday
that he intended to move legislation in the coming weeks. He said the
measure he was preparing would discourage abusive loans by imposing
legal liability "up the chain." It would give borrowers and others the
ability to sue the Wall Street firms that package those mortgages and
then sell them as mortgage-backed securities, as well as the purchasers
of those securities in the secondary market.

"Anybody, including the original borrower, can make a claim, and the
liability would go up the chain," he said. "People say it may
discourage certain kinds of lending. But that's precisely what we want
to do. We will pass a bill that won't allow companies to loan people
more money than they can pay back or loans for more than the value of
the house."

GRRRR.  Does no one remember what it was like to get a mortgage before they were so easily securitized?  The paperwork in the credit application was horrendous, as was the time it took to complete the mortgage.  Today they check two or three numbers, and if these numbers match the requirements of the Wall Street companies that package the loans, the loan is approved.  This legislation, which is aimed at slamming the securitization process, will hurt everyone.  All of our lives will be made worse so a few politicians can demagogue an issue that will be forgotten in 12 months.