August 17, 2007

Neither a borrower...

Reckless borrowers, for whatever reason, tend to be more sympathetic figures than careless lenders. So Paul Krugman suggests today that the federal government find a way to intervene in the credit crisis that allows borrowers to renegotiate the terms of their loans while forcing lenders to eat losses. But Arnold Kling reviews Krugman's suggestion and finds it wanting on logical grounds. He says that once a loan is securitized, as so many have been, you can't do both, because the rules for servicing the loans can't be changed after the fact. You either have to bail out the borrowers, and let them use their bailout to pay off their loans -- to those who now own them -- or you let the borrowers go under and take the financiers with them. Here is Kling's post.

Posted by dweintraub on August 17, 2007 2:29 PM