Steve Chapman

Fortunately, the mortgage mess is an excuse for additional intervention, which they can justify in the name of helping homeowners as well as the economy. As it happens, though, an effort to rescue people who can't pay their mortgages will probably make a bad thing worse.

In the first place, it will slow down what has to happen to bring back the housing sector -- which is for prices to drop to a level that will clear out the existing oversupply. In the second, it will shift the burden of bad lending and borrowing decisions from the people who benefited from them to the people who didn't.

Rep. Barney Frank, D-Mass., is pushing a bill to let the Federal Housing Administration guarantee "at risk" mortgages if lenders agree to reduce the total debt. It might be callous of me to say this approach amounts to rescuing "people who were imprudent and bought more house than they should have." But I didn't say it. Barney Frank did.

If the FHA guarantees all these mortgages -- up to $300 billion worth, if Frank has his way -- it will be putting its trust in people who have already shown themselves to be a bad bet. So taxpayers could end up eating a lot of delinquent loans.

The mortgage problem has had the useful effect of forcing financial institutions to exercise greater care in scrutinizing their customers. A lot of the credit crunch is not a bad thing but a good thing, reflecting a tightening of standards that got way too loose. A bailout, by contrast, can only weaken the lesson we should all learn from this episode.

Acting in a hurry without considering the long-term consequences, you may recall, is how we got into this predicament. Fixing major mistakes is not an overnight task. But in time, foreclosures will subside, the housing sector will return to normal and the economy will regain its usual vigor. Here's what Washington should do to help: Let them.

Steve Chapman

Steve Chapman is a columnist and editorial writer for the Chicago Tribune.

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