Buried at the end of a page C2 Wall Street Journal story on efforts to revive the US mortgage finance market: “Congress is considering new legislation aimed at making it easier for homeowners to refinance by offering government insurance on certain qualified loans. While good for homeowners, the rescue effort could establish an incentive for borrowers to miss payments to qualify for the program.” [Mortgage-Securities Revival Proves Elusive, June 23, 2008, C2]
Why is it that this is not mentioned in the headline of the story?
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One intervention deserves another and another and another and another and another and another and another and another . . .
Congress is considering new legislation aimed at making it easier for homeowners to refinance by offering government insurance on certain qualified loans. While good for homeowners, the rescue effort could establish an incentive for borrowers to miss payments to qualify for the program.
Gee, and here I though those who pay on time would be rewarded… silly me.
Bruce and Francisco:
Though I don’t believe I’m telling you anything you don’t already know, I’d simply point out that the piling on of moral hazard upon moral hazard is implicit–can be traced to–the original and underlying one: the concept of a quantity-controlled, fractionally-backed, legal-tender (status-enhanced) medium of exchange.
To put it another way: once the above-stated type of money is universal (as is the case), the rest of what you get (with minor variations and intervals) is virtually inevitable.”Fixing” one or another of the most presently-evident weaknesses may, indeed, postpone the catastrophe but does nothing whatever to relieve the pressure for its eventual realization.
What I describe is not a modern development nor recent perversion of the role of money in human life. Rather, it is actually an early-introduced weakness in an evolutionary development impaired by faulty (or lacking) theory. Presumably, had we known better than we did, we might have done better, though not, by any means, necessarily.
It is pessimistic to say so but tending to the latest tremor or quake can only buy a bit of time before the advent of catastrophe so immense as to reduce civilization to pre-agrarian levels of population or to agrarian agglomerations characterized by rigid, anthill-like organization (with, in either case, at best, a chance to repeat the process). Malthus might smile wryly and allow that, “though I hadn’t thought of it before, there really IS more than one way to skin a cat.”
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