Congress should simply outlaw adjustable-rate mortgages, which
basically ask borrowers to treat their home mortgages like stocks…Congress should also ban private lenders and brokers from issuing
sub-prime loans of any kind.
I am curious as to whether subprime marriages should be outlawed as well. Starting a small business? How about having a kid? Of course we shouldn’t give them credit cards. Outlawing loan sharks will be easy too.
The weakness of these policy recommendations is a sign of how lost our current understanding is. In most policy areas, the left has a better idea than simply shutting down the market. The reality is that we don’t know how to legislate against bubbles. Nor is it mentioned that there’s not a clear definition of what a subprime loan is or how such a ban would be enforced in practice. Remember the good ol’ days when Joseph Stiglitz argued that credit rationing meant that banks made too few loans to high-risk borrowers?
Here is the much longer piece, which has a good deal of content. The economic history in the linked article is very, very wrong, no matter what your political point of view. Imagine discussing the S&L crisis of the early 1980s without even mentioning the high inflation of the late 1970s or the resulting low levels of bank capitalization. It’s fair enough to blame the right for relative silence on the real estate bubble — a clear case of market failure — but this article has to go in the Hall of Shame.