Who are the predators in the sub prime debacle?

Bill Murchison:

We always get back to the same place, don't we, whenever something goes wrong -- the place known as How Can the Government Help?

Already Democrats, without too much contradiction from nervous Republicans, are sifting ideas to help the subprime mortgage victims keep their homes despite rising mortgage costs. Denunciations of "predatory" lending practices fill the air, though I'm not aware of a single presidential candidate's having fingered specific predators -- or even having attempted to prove that predatory practices are at the bottom of the problem.

Meanwhile Hillary Clinton talks of a $1 billion federal fund to help families likely to find themselves sitting on the curb outside their former houses (or, much likelier, moving into apartments or rental houses). The New York Times on Sunday ran a poignant photo of a father and young son about to be ousted from their home.

This stuff hurts. Home ownership is, allegedly, the American dream, notwithstanding that only in recent decades have a majority of Americans actually owned their homes. Americans don't like the idea of other Americans losing homes and hopes. In which attitude there's much to applaud.

Still, the other side of the coin needs a little burnishing. Any economic system -- in particular the free market system, which is risk-based -- presupposes winners and losers. That you don't win isn't necessarily your fault. Bad luck could be responsible -- as when, in a rush of exuberance, one has borrowed a sum hard or impossible to repay, expecting, like Wilkins Micawber, that "something will turn up." But it doesn't. Now what?

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One of the ways the Congress could help is to keep the IRS from charging taxes on the "forgiven" loans of those in default.

But, there is something basically wrong with charging predatory lending practices against business that are losing their own business because they made loans that could not be paid. They made a bad business judgment and it is costing them more than the homeowner who can't pay and goes into default.

Lenders do not want to own defaulted properties. In a normal market, if the property is worth more than the existing loan, the homeowner who can't pay can sell it and pay off his mortgage. If the property is worth less than he owes, then both he and the lender have a problem. Predators don't want that kind of problem.