How Does One “Freeze” Markets, Life, or Time?

By Sean Fenlon on December 12, 2007


There was a DoublePositive staff meeting today. I spoke about the MTG industry and my predictions for 2008.

One thing I intentionally did not address in either is a discussion of the proposed Subprime (mortgage rate) Freeze.

Frankly, I did not address it because, quite frankly, I don’t get it — and I’m a reasonably bright guy that happens to know a LOT about the mortgage industry. I already pleaded for a Laissez-faire government policy on this one. Although, I was quite happy to hear Warren Buffet agree with me on something non-political:

http://www.cnbc.com/id/22207079?__source=RSS*blog*&par=RSS

Neither Warren nor I know how you can logistically pull this “subprime rate freeze” promise off. Under the US Constitution, the federal government cannot change contracts between borrowers and investors/lenders. Changing risk pricing is changing natural market behavior. A reasonable analogy would be the government “freezing” stock prices on the stock market (e.g. we hereby decree under Directive 10-289 that no stock of any Fortune 500 company can fall below $20 per share).

Hmmm…

I’m hearing a lot of words in the reports about the intent of this initiative that I seem to recall from another source…

The words of Wesley Mouch (a fictional antagonist character from the book Atlas Shugged by Ayn Rand)

  • hold the line
  • stand still
  • catch our stride
  • we can’t afford to move
  • we’ve got to stand still

The picture now is this,” said Wesley Mouch. “The economic condition of the country was better the year before last than it was last year, and last year it was better than it is at present. It’s obvious that we would not be able to survive another year of the same progression. Therefore, our sole objective must now be to hold the line. To stand still in order to catch our stride. To achieve total stability. Freedom has been given a chance and has failed. Therefore, more stringent controls are necessary. Since men are unable and unwilling to solve their problems voluntarily, they must be forced to do it.” He paused, picked up the sheet of paper, then added in a less formal tone of voice, “Hell, what it comes down to is that we can manage to exist as and where we are, but we can’t afford to move! So we’ve got to stand still. We’ve got to stand still. We’ve got to make those bastards stand still!”

All I can offer to Uncle Sam in this situation is the advice that a policy intended to hold back time or markets is seldom a good policy — it’s like trying to hold back time (or water).

SPF


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