O Federal Government, Where Art Thou?

Despite my general left-ee-ness, I'm not anti-capitalism, or anti-markets. But I believe very strongly that it's the federal government's job to protect us from dishonesty. Markets only work if there are appropriate limits on what people can do, and if there are rules and ways of enforcing those rules.

With the latest mortgage based credit brou ha ha in the US, it's hard to believe that the Federal Reserve Board "recently put into effect rules barring a lender from making a loan without regard to the borrower’s ability to repay it." (New York Times article) Oh, like, maybe lenders have responsibilities too? Shocking.

The article explains that creditors today have raised their fees, and treat those as the assets, rather than the loan itself: "because so much consumer debt is packaged into securities and sold to investors, repayment of the loans takes on less importance to those lenders than the fees and charges generated when loans are made." That's messed up.

So while I think we are responsible for our own decisions and shouldn't be borrowing indiscriminately, I also think it's dishonest to profit by someone's ignorance. The market is based upon confidence, and if a lender doesn't have confidence in the loan applicant, they shouldn't grant the loan. While I'm reassured that "some bankruptcy experts and regulators are beginning to focus on the responsibilities of lenders, like requiring them to make loans only if they are suitable to the borrowers applying for them," I'm sure many a foreclosed-upon American is wishing it happened sooner.