One and a Half Reasons Why I am Wrong On Homeowner Mortgage Relief

I've been channeling Mr. Scrooge on government-sponsored homeowner mortgage relief: most of these people took knowable risks that turned out badly: too bad, but that's life. Here are one and a half reasons why I may be wrong.

One reaason: in a sane market, the lenders would be providing a lot of relief. The reason is straightfoward. The debtor owes you $100. He can pay you only $70. But the next-best buyer can pay only $60. Smart bankers understand this; smart debtor lawyers negotiate in the white space between $60 and $70.

That's always been the way. What's different this time is that nobody owns the problem, so there is nobody to do the deal. In default of a deal, government sponsored relief may be a case of doing what lenders in enlightened self-interest should be doing for themselves.

Now the half reason: bankruptcy courts have rewritten loan contracts before, and the system survived. Back in the 80s, bankruptcy judges used persuasion and compulsion to restructure a whole slew of failed limited partnerships. Back in the 30s, the Supreme Court invalidated a debt-relief system for farmers; debtors howled, and a year or two later the same court blessed a statute identical except for a few commas and semicolons.

So nothing says it is structurally impossible, and it maybe doing some bankers a favor. Even if you don't like debtors, save your outrage for something else and let this one slide.

[Do I believe my own arguments? Sometimes, maybe, more or lesds.-ed.]