The nanny state to the rescue

Since people have become so financially illiterate (among many other forms of rampant illiteracy), Uncle Sam feels it necessary to step (again) into the lending markets:

To prevent a repeat of the current mortgage mess, Bernanke said the Fed will adopt rules cracking down on a range of shady lending practices that has burned many of the nation's riskiest "subprime" borrowers — those with spotty credit or low incomes — who were hardest hit by the housing and credit debacles.

The plan, which will be voted on at a Fed board meeting on Monday, would apply to new loans made by thousands of lenders of all types, including banks and brokers.

Under the proposal unveiled last December, the rules would restrict lenders from penalizing risky borrowers who pay loans off early, require lenders to make sure these borrowers set aside money to pay for taxes and insurance and bar lenders from making loans without proof of a borrower's income. It also would prohibit lenders from engaging in a pattern or practice of lending without considering a borrower's ability to repay a home loan from sources other than the home's value.

Yes, the lending industry has a lot to answer for... and if the Fed stopped bailing any of them out, they would indeed answer for it as their bad loans returned to blast them out of business. But most of the loans now squeezing many people would never have been made had the borrowers been more realistic about what they were doing and the chances of it burning them. What we have here is erosion of responsibility on both ends: laws to keep people from making ill-advised choices, and federal money to keep afloat banks who should have known better than to lend to some people in the first place.

All this does is make the State the mother hen of all, to the detriment of those ever-fewer citizens who take time to educate themselves and act responsibly.