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Populist pandering won't cut it
November 21, 2008 - Lee Smith
Minnesota Attorney General Lori Swanson cannot be a stupid person, so one can only assume that her proposal to force mortgage lenders to negotiate with homeowners before foreclosing on their homes is pure populist politics. Swanson says her plan would require lenders to enter into mediation with homeowners, with everything from interest rate, principal and loan term up for discussion.
The problem? While some lenders may be in a position to negotiate, Swanson is ignoring what has emerged as a major problem — determining ownership of mortgages. During the housing boom over the past decade, mortgages were chopped up and sold off as securities. While this worked during the boom, these securities now represent the stumbling block in the financial world. Investment banks, insurers and others have been stung by their holdings, and credit is slow to move because banks are leery of lending money to other banks that may hold this "sour" debt.
Swanson, obviously, wants to appear to be doing her job. She might also be hoping to run for a higher office someday. But her proposal is pure pandering that will accomplish little or nothing. And she knows it. Again, I'm assuming she is not completely ignorant of what has been happening the country during the past year.
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