Congress to moral hazard: drop dead!

Opinion Journal: "Uncle Subprime"

A new study from the Boston Federal Reserve destroys the myth of the victimized subprime borrower. Boston Fed economists examined 1.5 million homeownerships over nearly 20 years and found that the overwhelming reason for subprime foreclosures is not unsustainable debt foisted on ignorant borrowers or even financial setbacks. People walk out on subprime mortgages when the value of their home declines.

Homeowners who've suffered a 20% decline in home prices are 14 times as likely to default as those who have enjoyed a 20% gain. . . . In other words, even if the government moves these borrowers into FHA-guaranteed mortgages with fixed rates, but home prices keep falling, lots of borrowers will stiff the taxpayers like they've been stiffing private lenders.

What's with all the "do-overs"? Bear Stearns and subprime lenders & borrowers all took risks in this crazy game called capitalism and lost. Government intervention only invites more irresponsible behavior down the road.

More - Maggie's Farm on the toxic incentives of the subprime game.