Cyreenik Says
In August I warned that the stage was set for a Credit Crisis blunder. In November we moved a step closer to making such a blunder a reality.
The November 28th edition of the Wall Street Journal has an editorial on a bill that the US House of Representatives passed with a veto-proof majority. This is not enough by itself to make this bill a law, but it indicates that Panic Thinking on this matter has full control of The House. Now it's up to the Senate or the President to be a "cool head" in this matter, or we will be living with a billions of dollars blunder.
The Wall Street Journal reports:
So, right on cue, by a veto-proof vote of 291-127, the house earlier this month passed a bill that would reduce home ownership. That's not the stated intention of the "Mortgage Reform and Anti-Predatory Lending Act of 2007" but it is the probable result.
What we have here is fine example of the Never Again sort of blunder. The community, in this case The House of Representatives, is doing something totally unnecessary, but not without effect. It will become something that will have nasty surprise consequences. This bill is intended to stop the excesses that caused the Subprime Crisis in the first place. This is unnecessary because the banks and lenders are doing this already. The banks have been feeling pain for months, they don't need a law to make them stop doing what they did before. This is a blunder because even though it isn't needed to stop the problem, it will have big effects -- Congress is way late and off target, but it has big teeth.
The surprise consequence is what this editorial then goes on to complain about: in an effort to stop the small sub-set that is predatory lending, the law will discourage all lending to low-income would-be home buyers. If this happens, if home buying is seriously discouraged by this law, this becomes a text book blunder. The laws consequences will then strongly resemble the surprise consequences of the Sarbanes-Oxley Act of 2002 (SOX) (in fact, this bill should be called Son of SOX) which strongly discouraged setting up stock companies in the US, and thus encouraged the hedge fund boom and stock exchange booms in many other countries.
That's what I have for December,
Cyreenik
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