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.