Because even I, with my lowly B.S. in Economics, can grasp that you can’t turn a bad investment good simply by willing it so:
U.S. Senate Banking Committee members urged Fannie Mae and Freddie Mac, the mortgage companies placed under federal control this week, to freeze foreclosures on loans in their portfolios for at least 90 days.
“This action would provide immediate relief to many homeowners” and let the companies “turn these non-performing loans into performing assets to minimize losses,” Senators Charles Schumer, Robert Menendez and other panel Democrats said today in a letter to the companies and the Federal Housing Finance Agency, which is overseeing them under the government conservatorship.
That may be the dumbest thing I’ve read all week.
Halting collections on bad loans suddenly, miraculously turns them into performing assets? Senators Schumer, Menendez, and the other Democrats on the Banking Committee are obviously and painfully unqualified for the jobs they hold.
Government intervention into free markets never works well. The bailout of Fannie Mae and Freddie Mac signals the rest of the banking industry that there is no real penalty for bad judgment or foolish risks, and it appears that Sen. Schumer’s committee wants to eliminate the risk for individual borrowers, too.
Of course, that happens by shifting the penalty to the American taxpayers, and it’s worth mentioning again that Fannie and Freddie have made or guaranteed about $6 trillion worth of American mortgages.
There is no easy answer here, but the meddling of economic dunces like Chuck Schumer and Bob Menendez is going to prolong the painful recovery process.