There is a vast sea of difference between libertarians and regular conservatives (or at least the current incarnation of them in the limelight; I'm still betting people at home that self-report as conservative are largely fed up with the current US administration). But on some points I had thought them fairly close, which is why I've tended vote R much more often than D.

Looks like I'm continuing to be wrong. Bush has announced another loser of an idea: fixing subprime mortgages at the "teaser" rates.

For those who've not been playing along at home, a brief note. During the housing boom in the US a lot of mortgage companies were giving huge loans to people with bad credit scores. The rise in valuation of homes lead, I think, a lot of lenders to figure that if they needed to kick out the borrower, at least the home had gained in value. So they dangled introductory annual percentage rates in front of folks that made house payments looks darn do-able. Those mortgages, built on foundations of sand, were packed up and sold off as securities. So when someone finally stopped to ask if the value of the houses really was as high as everyone thought, and found that no, actually, they weren't, the thing came tumbling down. But the panic we've seen is only part of the problem. Those "teaser" rates that people snatched up are due to change after a few years. Apart from those people who can't afford their house payments as it is, there are those who can, but only just. When the rates go up lots more people will be edged into the Can't Squeeze Blood From a Stone category. Which is where we not find ourselves.

To deal with this, Secretary of the Treasury Paulson cooked up a deal with major lenders to have some of those low introductory rates frozen -- that is, they won't go up as planned. This, my friends and lovers, is a shitty idea.

People should be allowed to fail. It sends a strong signal to those people who may be considering similar options. But now, with the frozen rates, people will be allowed to stay in homes that they can barely afford to keep -- let alone keep UP -- regardless of the changing value of the investment they made. Cushioning people from their own stupidity only breeds more stupidity. At the margin, people will now take this new plan into account when deciding whether or not to buy a house. The government has shown that it cannot credibly commit to having a housing market that responds to actual market pressure appropriately. And if the program is used heavily, it won't go away any time soon.

The article linked says Bush wants this limited to a small subset of all the possible people who might fall into foreclosure. So, not only is this a bad idea, it's ineffectual and expensive. If it's a small subset, the frozen rates won't keep that many people paying the lenders, which means the lenders are not going to get enough to keep them afloat (I don't think they should be but if the point of making the new policy is to stave off the collapse, you might want the policy to actually do that) and we'll see the collapse even after spending billions in support. If it turns out a lot of people turn out to be interested and eligible, then the policy functions as a bailout for lenders. Helping payments get made is simply helping money get into the hands of lenders. You can say you don't want to give handouts to lenders and speculators, but if in the end it means that those people retain more income than they otherwise would have, you've effectively done the same thing.

Indeed, in place of this policy, an actual bailout would be preferable. Why? Transaction costs. With the new policy government resources will be spent to man the phoneline, provide guidance, process applications, and provide the financial support. In turn people will spend time and money to live in a house they can barely afford rather than say, working longer hours to make more money or searching for a better paying job, or indeed in finding a cheaper apartment. The lenders will spend time working with the lendees, the government, and the mound of paperwork all this will take. That means time and resources down the drain. Why not just hand the money straight over to the lenders and avoid all the economic waste? Because this way, people feel better about the whole thing, and the government gets to look like it's Doing Something.

Back to my political point: what US political group do you know that prefers to let people know that they feel the pain of the common man and won't let people fail because that might harm their self-image?