Stop the Mortgage Madness

The New York Times wonders how “home buying [might] change if the federal government shuts down the housing finance giants Fannie Mae and Freddie Mac.” Despite vague agreement that misguided government policy somehow encouraged short-​sighted, irresponsible conduct, many want government to keep it up.

It’s supposedly “well understood” that Fanny and Freddie “misused” government’s support to back “millions of shoddy loans.” Shoddy how? Shoddy because awarded to high-​risk debtors on terms impossible without the government’s easy credit, subsidies, regulations, exhortations and bailout net. Many of the loans would not have been made by creditors obliged to consider not only potential profits but also all the actual and potential costs, without government interference.

In the article’s very next paragraph, however, we learn that although the consequences of “misused” government support for untenable loans are now “well understood,” there’s a “much more divisive question” now in play: “whether the government should preserve the benefits that the companies provide to middle-​class borrowers, including lower interest rates, lenient terms and the ability to get a mortgage even when banks are not making other kinds of loans.”

Huh? You mean, many politicians and beneficiaries of government largesse are “divided” over whether a policy of destructively encouraging irresponsible conduct should be clung to with only cosmetic, if any, changes — even though this policy sank the economy?

Scavengers picking carcasses may not care about the long run. But the rest of us should.

This is Common Sense. I’m Paul Jacob.