Liberal Power by Invoking Victimization

By invoking victimization liberals justify government intervention and control of wealth, income and commerce. The most recent example is railing by the Democratic Party against "predatory" lending. Hillary Clinton has come out strongly for legislating a freeze on adjustable rate mortgages for 5 years - holding the interest rate at the low "teaser" rate. She has even hinted at a 7 year freeze.

What is the justification for the government of the U.S. illegally busting these contracts? The Democrats claim the borrowers are victims of unscrupulous lenders whose predatory business practices took advantage of sub-prime borrowers. Clinton states that people were, "lured into risky mortgages" and "led into bad situations".

This "predator" business model intrigues me. Apparently the argument goes that these sub-prime lenders loaned money to people who they knew could not pay it back. That means that the lenders made loans understanding that they were going to lose a lot of money when the borrower defaulted on the loan. That is some business model. Who took advantage of who?

Many of the sub-prime borrowers took advantage of all sorts of crazy offers which in many cases allowed them to get into a house without putting up any money. It makes perfect economic sense for them to walk away. They were renters before and now they are renters again. In his latest column George Will argues that in the case of no money down, interest only loans, the "borrowers" were really just renting anyway.

The interest rate freeze would be available for some borrowers but not others. If you can't afford the new adjusted rate then I guess the government would bust the mortgage holder's contract and maintain the lower teaser rate. If you lied about your income as part of a no documentation loan, and now cannot afford it you get a break so you don't have to go back to renting. But if your were honest about your income, and you've been able to stay current on your payments, then it is likely you will not get relief. You will have to pay the higher rate. How is this fair?

So who is the victim? The "predatory" lenders are losing huge sums of money and in many cases are going out of business. Large number of employees have lost their jobs. The homebuilders have excess inventory and are taking huge write downs. The holders of collateralized loan obligations are getting pennies on the dollar to unload their holdings, or are taking the obligations onto their balance sheets, damaging the capital structure of the firms. If you are a holder of a mortgage obligation and are legally entitled to a defined payment stream, the government's intervention to freeze teaser rates will deprive the holder of that payment stream. How is this fair?

In fact the only people who are not victims are the people that are walking away from the homes they lived in for a short time. But the Democrats, and even some Republicans, want to define these irresponsible borrowers as victims to justify the government expanding a central planning model of commerce. Never underestimate the Democrats' desire to create a new entitlement. Unfortunately, this newly proposed mortgage rate entitlement will only be available to those who acted irresponsibly.