I can’t believe I just heard this on the news! In the biggest assault ever seen on the rule of law and free enterprise, legislation is now in the Senate to allow bankruptcy judges rewrite the terms of mortgages! This was something they (the judges) were properly prohibited from doing before.
The ‘logic’ appears to work like this:
1. The banks are ‘guilty’ of doing too many ‘predatory’ loans (even though the Government and Leftist ‘Social Justice’ created this situation) and they paid their execs too much, so they deserved punishment.
2. Now that the government has pumped billions into these failed financial institutions, they have to do ‘business’ the way that the Administration and Democrats feel is ‘good’ and ‘proper’ to them- not according to the free market.
3. In that vein, now they feel that the mean banks haven’t felt bad enough and ‘helped’ the ‘poor’ people just scraping by and in danger of losing their $500,000 homes. The ‘people’ have a ‘right’ to a house whether they can afford it or not!
4. So, Congress is trying to pass legislation that will allow bankruptcy judges to rewrite not only the interest rate, but also the PRINCIPAL amount of a previously, completely legal mortgage contracts!
So everyone, or at least politically designated victim groups, get a do-over? Ally, ally in free! – as children would say. This is nothing less than a whole scale un-doing of the rule of law and a deconstruction of our free market economy.
What they (Obama and Dems) think will happen: Social justice will be served and those predatory banks will be put in their place. The collectivist wisdom will hold that this will somehow create a better, overall economic outcome because a foreclosure on a house (only selected victims) makes everyone lose in a neighborhood. It’s more important to preserve an unviable status quo than for those exercising bad behavior getting punished by the market.
What objectively will happen:
1. Foreclosures will explode. With the option of keeping the same asset and getting a free, feel-good write down of the interest rate and principal by a judge, millions will rationally quit struggling to pay. It is a certainty of human nature. Those in danger would be stupid not to take advantage of the legislation. Obama and Democrats will be baffled by the whole scale collapse of the housing market due to a ballooning of foreclosures.
2. Banks will avoid or stop doing mortgages. They will sell-off or create separate entities that focus on ultra-risky ‘mortgages’ that can be changed at will by fiat of Congress and the stroke of a judge’s pen. Obama and Democrats will be baffled again by the incredibly bad outcome of this policy. They will shrilly call for the hated banks to lend according to their political needs, but won’t get that the banks thrive or die according to objective markets concepts like risk, legal contractual agreements, and profit.
3. The stock market will crater even farther than it is now. With the legal and market rules being changed at will and whim by political despots, capital dollars will flee the market. Obama and the Democrats (as they are now) will give increasingly strident pleas, then demands that hated investors risk their money so that their feel-good ideology will quit being increasingly trumped by the reality of a devastated economy.
Never did I think I would see such a unwise, anti-American policy come from the highest political ‘leadership’ in our land. If this goes through, we will not be the land of the free and the brave, but one of the the ‘victims’ and the politically correct.