Two big NOs to the mortgage freeze

Bill Fleckenstein has a laundry list of reasons to oppose it.

They include the possibility that it will further deflate values, more than doing nothing would, and encourage further irresponsibility, including from the holders of doggy mortgages:

This bailout will complicate the lives not just of homeowners but of anyone who touches the mortgage paper after them. Allowing someone to pick whatever mortgage rate they'd like to pay will solve nothing. It will only make mortgage-backed assets worth that much less, with the very stocks that rallied recently on this idea being the ones negatively impacted.

Jon Markman agrees and for similar reasons :

Have we completely lost our common sense? Is it really desirable to provide easier money to people and companies that got into trouble by abusing their access to money in the first place? And is it really a good idea both to cancel mortgage bondholders' contracts for the sake of an adjustable-mortgage-rate freeze and to provide a couple of years of grace for stressed-out home borrowers who are likely to eventually default anyway?

Personally, I think they’re right. I don’t doubt that I’m more politically liberal than either one of them, but, liberalism doesn’t equate to irresponsibility or free passes.

If that’s not enough, Markman says we could stand to learn a lesson from Japan:

Postponing the undeniable anguish involved in making participants own up to debt-fueled losses is exactly why it took Japan more than a decade to shake off the bursting of its own credit bubble back in 1990. Interest rates were cut essentially to zero, but because moribund banks and real-estate tycoons were given government stipends, they drew funds and attention away from more-productive uses, and the country entered a recession that haunts Japan to this day.

Plus, Markman points out, in the future, holders of mortgage-based securities will demand a higher risk premium. (Now, on the other hand, that’s going to be true anyway.

Beyond that, he says we should expect a spate of lawsuits before this is all over.

And, in yet more cheery news, auto loan delinquencies are their highest in a decade and look like they will continue to rise.