this strikes me as a disaster...

In other words, I'm about to discuss some recent action of some government in the U.S. Buried in this article about housing woes (yeah, that still qualifies as "news" for some outlets), which I read at lunch today and was reminded of over at Recon's Black Ops, is the following frightening prelude to yet further unleashing of the already out-of-control court system:

To give debt-burdened homeowners a little more muscle to negotiate with their lenders, the House on Thursday was expected to pass legislation to give bankruptcy courts the power to reduce mortgage payments.

The legislation would give bankruptcy judges — who now can modify loans for cars and student loans but not for primary residences — new power to cut the interest rate and principle on a home mortgage.

As you might guess, I'm not a fan of that sort of bullbleep in any form. But this new concoction* is an even more terrible idea than most government "reforms." Couldn't they just contain it to only interest rates? I mean, that's where we keep hearing about how people were taken advantage of and all, simply because they didn't bother to first understand the biggest purchase of their life before signing on the line. But now we're implying that they were somehow misled on the sticker price? What!? They somehow deserve to have the house for much less now, even though they knowingly and willingly agreed to the price up front? Heck, why even have people sign mortgages then? They're no better than a handshake agreement when it comes to the eyes of the judge. Scary, kids...very scary.

And that's exactly what's going on here. By giving a judge power to alter the principle on a mortgage, you're giving the judge power to change all terms--including, effectively, the purchase price itself--on the mortgage. If that happens, the idiot who signed on to terms he couldn't keep isn't gonna be the only one losing lots of money. The bank will have already paid off the seller and will be in the position of needing that money to make its balance sheet work. And now those bankers have that much less of a guarantee that they'll ever actually see that money? What effect might we expect this to have on the banks?

On to the "let's make banks lend again!" mantra we hear so often nowadays. With these new rules, you're telling the bank that no matter what terms they agree to up front, they have no assurance those terms will actually reflect the deal they're making. But wait, don't we want to unfreeze credit by making banks more willing to lend? Well, if you're a banker, what is that new blast of cold water going to cause you to do? For one, you'll make damn sure that whoever you actually do take the risk of entering into a mortgage "contract" (and I use the term loosely) with is as sure a bet as possible. The bar must be raised for all would-be borrowers, because if that fool somehow ends up in bankruptcy court then you're even more screwed than you would have been before this ingenious new law.

And that is supposed to make banks more eager to lend money? Wow. Only the dumbest of the dumb could expect or even hope for such an unrealistic outcome. What else would we expect from politicians?

And what kind of effect should we expect this to have on markets in general? Well, a basic axiom of economics is that an economy works best when there are hard and fast rules to work by.** Any system in which the rules can be changed or rewritten too easily is going to stifled for want of brave souls willing to stray too deep into the dark unknown of tomorrow's new rules. On the other hand, a system with reliable rules that engender order and accountability will encourage boldness and the growth and progress that comes with it. After all, who is gonna risk much without knowing what the heck the rules will be down the road or which ones will change? What sense does that make?

So while you certainly don't want to eliminate risk itself, you want to eliminate anything that stands between the risk-taker and the rewards or consequences of his own risk. How exactly is a rule allowing more contracts to be altered de facto by a third party supposed to engender a stable, predictable playing field on which to do business? This is insanity.

Look, folks, the root of this here economic problem is greed, pure and simple. Greed on all sides--nonthinking entitlement cases who bought more house than they could afford, banks who saw an opportunity to capitalize on the stupidity of others, investors who sought to ride the roller coaster just long enough to add to the misery of others, folks like me who contributed our fair share to the consumerism that drove the craze, and on and on. Nobody is really innocent here, and now it's time for us all to get our due for the greater mistakes of a few.*** So if you want to fix the problem, go at the root of the problem, not just the presently visible effect of it. If you go after the effects and not the cause, you'll fail to move toward any solution and will only create more havoc in the process.

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* The concoction referred to appears to be the hilariously-named "Helping Families Save Their Homes Act" introduced by John Conyers, a new addition to my list of Washington's Most Dangerous People. Thankfully, at least my guy, Geoff Davis, voted against the atrocity. The man has proven to be a reliable voice of anti-communism in recent months.

** I'm reminded here of the words of a former co-worker who had emigrated from Hungary during its Communist days. According to him, the big draw of the U.S. among him and his contemporaries was a system built on freedom, justice, and immutability, in which one was free to do his own thing and reap what he sowed. He could work and actually earn his own money and be free to do with it what he pleased. If he bought a car or a house, it was his, and as long as he played by the rules then no government or other body could suddenly issue an edict to the contrary. What concepts! And how great they must have been to people who had spent their lives in a country with no semblance of such order or freedom. Alas, the good old days...

*** As in, the economy is worse off and we're all affected by it. I'm not at all talking about some "socialist-lite" plan to "protect" said few by bailing them out with taxpayer money and thus moving the bulk of the burden from the few to the many. Socialism sucks, every time, all the time.

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