Rate Freeze Will Not Resolve the Subprime Crisis

Published December 14, 2007

Sir, Clive Crook (“The trouble with the Paulson plan,” December 10) highlights the glaring problems with US Treasury secretary Hank Paulson’s subprime bail-out plan.

The bail-out is a blatant example of government intrusion into the mortgage industry. The plan is flawed: a freeze on adjustable rate mortgage interest rates is a short-term solution at best. Coercing lenders to freeze rates is a sure way to worsen the current situation.

A rate freeze does little to address the systemic weaknesses causing the current crisis. A rate freeze will keep interest rates artificially low, akin to price control, to solve a problem that was created in part by artificially low interest rates.

Freezing rates both interrupts the markets’ natural correction process and reinforces risky behaviour.

Knee-jerk government intervention in private agreements is the last thing we need during a crisis.

Matthew Glans ([email protected])is legislative specialist for insurance and finance at The Heartland Institute.