The Right to Contract

I've had my head stuck in 19th Century jurisprudence for the last six months or so as I research a book. The right to contract had primacy to courts for centuries. It may be watered down today, compared to Lochner v New York, but I still don't see how Secretary Paulson's subprime bailout liquidity and solvency plan can even be considered.

Andy LePerriere wonders about moral hazard in the Wall Street Journal. (It's a paid link, but maybe you can get the government to give you access. Just 'cause I signed up and paid doesn't mean much).

A taxpayer bailout of distressed homeowners would be expensive, unfair to the vast majority of homeowners and renters who have made prudent financial decisions, and set a troubling precedent that would invite reckless behavior in the future. What's more, a bailout will not stop the inevitable correction in home prices, and is unlikely to prevent the associated economic repercussions.

But I think Stephen Moore has the more credible objection: how can you go in and renegotiate people's mortgages? Can the government get me $100 off the TV I bought last year? If you want to bail folks out, that is dumb but legal (by today’s lax standards).

I just don't get how can rewrite an existing contract and proscribe a lender from adjusting a rate in accordance with a signed contract. That is a lot scarier than a stupid bailout plan.

Posted by John Kranz at December 4, 2007 1:32 PM