Like a tv sitcom that inevitably manufactures a Very Special Episode, the absurd sub-prime flap has taken a serious policy turn. To wit:
House Financial Services Committee ... Chair Barney Frank (D., Mass.), wants to hold not only the packagers of mortgages liable [in federal court] but also the purchasers in the secondary market. "Anybody, including the original borrower, can make a claim, and the liability would go up the chain," Mr. Frank told the press. "People say it may discourage certain kinds of lending. But that's precisely what we want to do. We will pass a bill that won't allow companies to loan people more money than they can pay back or loans for more than the value of the house."
Recall when reading pieces such as this that the word "prime" when used in the term "sub-prime lender" does not refer to an interest rate. "Sub-prime" actually refers to the borrower: a party with a blemished credit score. I'm starting to agree with Alex Tabarrok. Those who bemoan the sub-prime lenders are credit snobs. Especially those for whom the expression is in and of itself meant to be insulting. "You lend to the poor and lower middle class? You Visigoth!"
This legislation might pass. And if it does, money will dry up. Jobs will be lost. Blame will be assigned. Wrongly assigned.
Read Tabarrok's work on the subject here, here and here.
Read our work on it here.
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