Reply #8: An interest rate freeze is an idiotic idea [View All]

[anigbrowl]

A moratorium on foreclosures is a good thing, as is expanding the pool of loans that can be taken over by Fannie Mae or Freddie Mac. But an interest rate freeze is both impractical and inefficient. In the short to medium term, interest rates are likely to decline rather than rise. The only people likely to benefit from a rate freeze are those who got super-attractive teaser rates, which are highly unlikely to qualify under either the Clinton or the Edwards plan.

On a larger level, imposing a mortgage rate freeze is equivalent to a bank bailout where taxpayers hold all the risk. It's bad for inward investment and in particular would act as a huge brake on the purchase of new homes. As with any economic issues, populist policies here are a feel-good solution that doesn't address the structural faults of the problem and sacrifices long-term economic performance for short-term relief. No central banker in his or her right mind is going to endorse such a plan, and neither will the markets. It's practically guaranteed to result in a recession, a classic example of the cure being worse than the disease.