What’s Wrong With Subprime-Relief Proposals

clipped from blogs.wsj.com Proposals to aid borrowers affected by the subprime crisis are based on a flawed presumption: that consumers would have behaved differently if they had a deeper understanding of their mortgages. Economist and Nobel laureate Gary Becker says that in the atmosphere of low interest rates that has pervaded the economy in recent years, it is unlikely that more information would have stopped either borrowers or lenders from signing on to risky loans. Richard Posner. recent proposals to prevent consumers from obtaining mortgages unless they meet minimum income or asset standards smack of paternalism by denying “the rights of both borrowers and lenders to make their own decisions.” Mr. Becker is suspicious of the prospect of federal intervention in the housing market, saying the best role for government is to use monetary and tax policy to sustain economic growth. In the long run, he says, a recession would do less harm to society than restrictions on lending practices