09-24-2008, 04:37 PM
Filliam H. Muffman wrote:
Giving reasonable loans to struggling homeowners does not benefit rich people.
On the contrary, unwisely granting loans to "struggling homeowners"---buyers with substandard credit, inadequate collateral, a questionable ability to repay the loan---is part of how banks and policymakers got us into this disaster in the first place.
People who are creditworthy aren't necessarily rich, and those that are rich aren't necessarily the beneficiary of unearned privilege. A credit freeze affects everyone, regardless of status. Low income borrowers bought into the fantasy the same way everyone else did. About 6% of them defaulted, leaving banks with property they don't want.
The idea that credit is a "civil right" got into the mix somewhere. It may sound benevolent, but it doesn't make economic sense. It only worked under the illusion that property values would continue to grow, absorb the risky loans, and reward struggling homeowners with equity the same way it rewarded affluent homeowners.
Predatory lenders, housing-boom blindness, and inadequate regulation are partly to blame, but part of why we're in this mess is because our political elites thought it was good social policy to encourage banks to give mortgages to uncreditworthy borrowers.