Larry Elder

Our catastrophe-obsessed traditional media calls it the subprime mortgage "crisis" or "meltdown." Here's what happened:

Borrowers with shaky creditworthiness received low interest "teaser" rates. No problem, as long as housing prices continue to rise. But with house prices stagnating, if not declining, this places some borrowers and the holders of their "paper" on financial shaky ground. In other words, lenders lent and borrowers borrowed. Some borrowers took on debt only to find themselves unable to pay their mortgages, and the carriers of their debt now find their holdings less valuable.

But what about the responsibility of both lender and borrower? The Media Research Center examined news coverage of the subprime "crisis." Of 156 stories broadcast between November 2006 and August 2007, 62 percent "ignored the consumer's responsibility for debt."

No one put a gun to either lenders' or borrowers' heads, and now both sides of the transaction find themselves in financial difficulty. Lawmakers scream for more laws. Never mind lenders already operate under many regulations including, but not limited to, full disclosure requirements.

Democrats, and many Republicans, cry for some sort of government (read "taxpayer") bailout. A New York Times editorial demands legislation, "including a rule that lenders must verify a borrower's ability to pay"!?

House Speaker Nancy Pelosi, D-Calif., and Senate Majority Leader Harry Reid, D-Nev., seek legislation to make Federal Housing Authority "loans more widely available in order to help both new homeowners and those struggling with abusive mortgages." They also demanded that President Bush fund nonprofit foreclosure prevention counseling, and appoint a senior administration official to oversee federal response to the "crisis."

Instead, the President has offered a sort of middle ground, suggesting a five-year freeze on mortgage rates for some subprime borrowers facing default on their mortgages.

Suppose you stayed on the sideline and rented or stayed in a smaller home in order to move up? Too bad, for the Bush plan artificially props up home prices. The President's plan also enables some homeowners to receive Federal Housing Authority loans in which the government -- taxpayers -- pay lenders in the event of a default. The plan also does nothing to prevent lawsuits by investors who hold the mortgaged securities in expectation of a certain return.


Larry Elder

Larry Elder is a best-selling author and radio talk-show host. To find out more about Larry Elder, or become an "Elderado," visit www.LarryElder.com.