The US government’s attempt to stem the housing crisis by getting lenders to freeze loans to troubled subprime borrowers is a far from perfect scheme. It involves arbitrary judgements, rewards for reckless behaviour and variations of contracts. But it is justified by the extreme circumstances. A... criticism is that the people whose payments will be frozen at the “teaser” rates shouldn’t have taken these loans (at all). There is (a) moral hazard in rewarding foolish borrowing and it is exacerbated by a design flaw in the plan. The generosity...will be determined by how low borrowers’ credit scores are, which is a further malign incentive. But the government is caught between the devil and the deep blue sea. The sheer scale of subprime borrowing...makes it unlikely that lenders can negotiate enough individual mortgage variations in time to prevent the next wave of foreclosure. And, without action on a sufficient scale, the housing crisis will deepen.
Moral hazard in US bailout
As a bailout not only of reckless borrowers but irresponsible lenders who preyed on them, it raises the question of moral hazard. …Such intervention contrasts with advice given to Asian countries during the Asian financial crisis from IMF and the US treasury: raise interest rates, bear the cost of massive defaults and improve transparency and regulation. ...Experience shows that troubled borrowers have a very high rate of default, even after generous renegotiation of their mortgages. The bailout might only delay the day of reckoning for people struggling under heavy debt...and may lead to bigger losses. (And) if investors in these mortgages are forced to accept a smaller return, they can be expected to demand a higher risk premium in future, making mortgages more expensive. Moral hazard...at a heavy cost. It does nothing for the efficien(cy) of free markets and the image of US financial professionals proffering services all over the world.
Delay, obstruction, Darfur
The world’s leaders say they care desperately about Darfur’s suffering, until they get distracted. It took years of international hand-wringing before the UN Security Council passed a resolution to send in 26,000 peacekeepers to replace a current force of 7,000, to try to halt the killing. With the deployment set for (1 January), major countries are ignoring (its) appeals for essential aircraft, and Sudan’s government is again reneging on its promises to cooperate... There are serious questions about whether the UN can manage such a large peacekeeping operation. ...Without a lot more pressure, Sudan will continue to obstruct the peacekeeping mission and spread ever more suffering and mayhem. China, one of Sudan’s major trading partners, and the Arab League must bring on that pressure. And the UN and other envoys must work full time... The credibility of the Security Council is on the line. So, are the lives of 2.5 million Darfuris.
Rights day or black day?
There is little to rejoice and much to be sorry for this year on the International Day of Human Rights (10 December). ...(B)y putting basic rights guaranteed by the Constitution in abeyance under emergency rule, the state itself has joined ranks with the abusers. ...Emergency rule is expected to be lifted on (15 December), but only after government actions since (3 November) have been protected and the Constitution amended under the special powers conferred on the president by the Provisional Constitution Order... Pakistan remain(s) far from conforming to the rights laid out in the (UN’s) Universal Declaration of Human Rights... (F)lagrant violations of citizens’ rights will go on unless democracy is allowed to take root, the original Constitution of 1973 restored and the political process, unhinged on the exigencies of the ruling establishment, taken forth. Unless that happens, rights groups will continue to observe (10 December) as a “black day” in this country.