Paul Krugman's Latest Terrible Idea

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Posted: Oct 21, 2010 9:16 AM

Paul Krugman‘s latest idea is so obviously bad, ill-conceived, and damaging that I was tempted to avoid wasting time on it. However, his most recent inane economic proposal merits highlighting simply to put to rest the oft-heard idea that these people simply haven't had enough time to effect positive economic change.

Specifically, Krugman wrote that debt counselors need the ability to modify mortgage loan documents on already outstanding home loans.

Loan terms like principal amount, interest rate, payment dates, default interest, collateral, and foreclosure provisions have evolved to produce a vibrant home loan market in which banks willingly participate to risk capital for relatively low interest rates. Granting a third party the right to change those terms after a loan has been underwritten and priced will chill the market for home loans, producing a mortgage loan scarcity and increasing interest rates as banks avoid risking capital in such an unpredictable venture.