... Greg Mankiw, who finds two articles that (deliberately?) miss the point, in order to continue the GOP disinformation campaign on the housing crisis.
Contrary to both Edward L. Glaeser and Robert Samuelson, neither bankruptcy nor the excellent Dodd-Frank proposals are an attempt to stop housing prices from falling.
Modifying loan terms in bankruptcy court might be a good way for buyers to get modifications to ridiculous loan terms (but probably not 100% financial relief whatsoever) and to keep sellers of financial products on the hook for outrageous lending practices, during the "sub-prime boom" (permanent changes to the code are probably not such a great idea, IMHO, and debatable). The court, for instance, could consider a lender who caused a buyer to "re-finance" three times in six years or something, extracting fees and equity, and ultimately trying to "capture" an asset (a house).
Dodd-Frank is an alternative way for markets to clear, avoiding significant frictional costs of bankruptcy and foreclosure. It is certainly not a way to stop housing prices from falling and no one ever said it was, did they?
Finally, the notion of "people who cannot pay their mortgages". As I understand it, something like 80-90% of folks can afford the payments they contracted for at current rates - it's just the (often impossible) resets that will be killing them.
Saturday, April 5, 2008
The Incredible Lightness of Being
