It is the credit bubble, stupid | Samizdata.net

And when the state decides to fix that by motivating more people to borrow by reducing interest rates to almost zero, that of course makes no damn difference at all because lenders, not borrowers, are the ones suddenly back in touch with reality. And just because the government (i.e. central bank) says “the price of loans is 0.1%”, that actually does not mean jack shit, because the genuine price of loans has to include the premiums needed to cover bad debts. Moreover if it cannot be determined how risky it may be to lend due to the poisonous spread of toxic debt, it is safer to just hold onto the money rather that flush it down the toxic debt toilet.

And how are the political looter class trying to remedy this situation? Well they are trying to re-inflate the bubble with the extra added spice of making the secured assets (property) even harder to repossess (in effect un-securing questionable loans either by fiat or with money plucked from the government’s magic money tree). Pure genius.

And the next news item just around the corner? Think about US Treasuries… or ‘Junk Bonds’ as they will soon be known. ‘Screwed’ does not even begin to describe it.

This is the sort of thing I am talking about when I say that the Democrats and Obama will destroy themselves and their party for a generation. Much as liberals would like to believe that reality can be ordered by government fiats based on wishin’, hopin’, and dreamin’, it cannot be - at least not forever. You can fool some of the people all of the time - those would be the liberals - and all of the people some of the time - that would include the Bush RINO go-alongs - but eventually it comes time to write that mortgage check. And when you can’t do it, because your government helped you write a check you can no longer cash, you lose your house - and rejoin the real world.

Another of my neighbors moved out yesterday. Nice folks, nice family, good kids. Mike and Tuloa and the family. They bought their house - which was a completely rehabbed unit in beautiful shape - about three years ago for something in the neighborhood of $450k. Both worked, and they squeaked into one of those trick exploding loans that ate up the majority of their take-home income. So when their loan reset to a monthly payment of $5400 (!!!), they were doomed.

So, were they saved by the Bush/Obama financial bailout plans? Nope, though they tried, and would have seemed the ideal candidates - lower income, ethnic minority, hard workers, family folks. The problem was, the bank wouldn’t give them anything that had any realistic relation to their income, even though the value of their home had dropped to $150k (so has mine, and I’m deep underwater, but my loan won’t explode, and I could afford the payments on the day I took it out).

As I say, they are good folks, and I am sorry both to see them hurt like this, and to lose them as neighbors. But dreams are just that, and they don’t last - especially when the dreams are in the nature of an endless buffet of free lunches.

Frank and the rest of the looters will make things worse - much worse. In their case, suicidally worse. Which is why the GOP needs to stay as far away from their insanity as it can. Because when they burn this house to the ground, we need a political party available to pick up the pieces. And that won’t be a party of Specters, Snowes, or Collins’. (via Instapundit).

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