Moral Hazard Cited as Bush Acts on Loans

The New York Sun reports:

Wall Street critics are coming out in force against President Bush's proposal to prevent subprime mortgage lenders from foreclosing on some homes.

Chief among the complaints is the notion of moral hazard — that borrowers who voluntarily took on too much risk are now being rewarded for their bet. There is also growing concern that the president's proposal will have a chilling effect on the bond market, with investors now worried that the government could step in and alter any type of investment contract just to stave off losses. In addition, there are questions as to the practicality of the plan, which enables lenders to freeze the interest rate on a certain type of subprime loans for five years, such as how to determine whether a borrower is eligible for this freeze.

"Without question, the Bush administration's mortgage rescue plan will exacerbate, not alleviate, the problems in the housing market," the president of Euro Pacific Capital, Peter Schiff, wrote in a note to clients. "This is a massive giveaway — every person with a subprime loan is going to do whatever he or she can to qualify for this interest rate freeze," he said during an interview.

George Bush certainly isn't "conservative" when is comes to mortgage finance.He's much closer to the views of the Democratic Socialists of America.Bush might be one of the most important socialists of his generation.