Cause And Effect

The New York Times continues to display a stunning lack of basic economic knowledge. Today, the editorial board argues for giving bankruptcy judges the power to modify the terms and conditions of first mortgages, in the name of helping out the little guy. Dumber words have never been spoken.

Sure, the clods who overborrowed, or believed the entire “real estate only appreciates” hype will benefit. But what of everyone else?

If banks know that a bankruptcy court can rewrite mortgages on a whim, credit will become less available. Banks will not lend to marginal risks. A borrower’s credit score will have to be significantly higher in order for banks to even consider lending money. Banks will only lend to those who don’t need it, to quote an old saw.

Further, banks will require larger downpayments in order to push risk back down onto the homeowner. Say goodbye to 5% or even 10% downpayments. Hello, mandatory 20% down, and in areas that have volatile markets (Florida, Las Vegas, California), look for even higher down payments.

Third, banks will raise interest rates in order to cover the new risk of courts rewriting private contracts. Gone will be the days of mid single digit rates. Look for rates approaching 10%.

The only way this stupid idea will not crater the housing market (and lending therein), is if the government steps in to guarantee downside bank risk, as they currently do with FHA and SBA loans (and Fannie and Freddie). And we all know how that’s going.

So, the NYT thinks it’s a good idea to have some short term gain, and let the very negative consequences fall on future generations. Great plan, guys. It’s worked out so well on social security, Medicare, public pensions and ObamaCare.

About 'Puter

Always right, unless he isn’t, the infallible Ghettoputer F. X. Gormogons claims to be an in-law of the Volgi, although no one really believes this. ’Puter carefully follows economic and financial trends, legal affairs, and serves as the Gormogons’ financial and legal advisor. He successfully defended us against a lawsuit from a liquor distributor worth hundreds of thousands of dollars in unpaid deliveries of bootleg shandies. The Geep has an IQ so high it is untestable and attempts to measure it have resulted in dangerously unstable results as well as injuries to researchers. Coincidentally, he publishes intelligence tests as a side gig. His sarcasm is so highly developed it borders on the psychic, and he is often able to insult a person even before meeting them. ’Puter enjoys hunting small game with 000 slugs and punt guns, correcting homilies in real time at Mass, and undermining unions. ’Puter likes to wear a hockey mask and carry an axe into public campgrounds, where he bursts into people’s tents and screams. As you might expect, he has been shot several times but remains completely undeterred. He assures us that his obsessive fawning over news stories involving women teachers sleeping with young students is not Freudian in any way, although he admits something similar once happened to him. Uniquely, ’Puter is unable to speak, read, or write Russian, but he is able to sing it fluently. Geep joined the order in the mid-1980s. He arrived at the Castle door with dozens of steamer trunks and an inarticulate hissing creature of astonishingly low intelligence he calls “Sleestak.” Ghettoputer appears to make his wishes known to Sleestak, although no one is sure whether this is the result of complex sign language, expert body posture reading, or simply beating Sleestak with a rubber mallet. 'Puter suggests the Czar suck it.