January 28, 2009
As Mish notes, the Fed seems to be attempting to create as many moral hazards as humanly possible with its use of the TARP funds:
The Fed policy is targeting borrowers who are 60 days or more overdue on loan payments and covers modifications of interest rates and payment plans. The program uses the Fed?s authority in the $700 billion Troubled Asset Relief Program and was released today by the House Financial Services Committee.
?It reflects the understandable desire of the Federal Reserve to have some cooperation? with the Obama administration, House Financial Services Committee Chairman Barney Frank told reporters today in Washington. ?This is a very big deal.?
The Fed?s ?Homeownership Preservation Policy? lets the central bank or its agents ?promptly? review applicable mortgages to determine whether the borrowers should be offered a loan modification, the document said. Qualified borrowers must be at least 60 days late on their payments.
The kind of behavior such a policy encourages should be pretty obvious. As I blogged about earlier, here?s what I?d be doing if I were underwater with one of those recently socialized mortgages, and I was completely lacking in integrity and moral character. First, I?d quit whatever job I had and find a really crappy, minimum-wage one, or none at all, so that the government would feel sorry for me and give me a low interest rate and monthly payment. Then I?d rent out all the rooms in my McMansion to my buddies and become a full-time landlord on the taxpayer?s dime. It?s the ?ownership society.?
With programs like these, we?ll be pulling ourselves out of this economic crisis in no time!
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