How Hillary wants to create a moral hazard

George Will looks at how Hillary Clinton wants to take advantage of the subprime mortgage problem by creating a moral hazard that will encourage more people to make mistakes with their finances.

Clinton leapt to explain the subprime problem in the terms of liberalism's master narrative -- the victimization of the many by the few. In a speech favorably contrasting a "shared responsibility" society with an "on your own" society, she said, in effect, that distressed subprime borrowers are not responsible for their behavior. "Unsavory" lenders, she said, had used "unfair lending practices." Doubtless there are as many unsavory lenders as there are unsavory politicians. So, voters and borrowers: caveat emptor.

But this, too, is true: Every improvident loan requires an improvident borrower to seek and accept it. Furthermore, when there is no penalty for folly -- such as getting a variable-rate mortgage that will be ruinous if the rate varies upward -- folly proliferates. To get a mortgage is usually to commit capitalism; it is to make an investment in the hope of gain. And if lenders know that whenever they go too far and require inexpensive money the Federal Reserve will provide it with low interest rates, then going too far will not really be going too far.

We can be thankful that the Federal Reserve is insulated from politics. We might not like the result of their decisions and they are not infallible, but the alternative is not perfection; it's having politicians take a more active role in controlling the money supply and I shudder to think what their decisions would be.