Flesh Eating Solutions

Giant, poisonous toads capable of killing crocodiles are bedeviling Australian farmers (as we reported yesterday). Imported as a low-cost solution for beetle control in the 1930s, they've since flourished, poisoning scores of species to near or total extinction! Plucky Australians seem to have created a market-driven solution to this crisis of governmental intervention—the toads, when liquefied, make a delightful fertilizer (https://www.chinadaily.com.cn/world/2007-03/27/content_837811.htm).

Here's a "life imitates the Simpsons" rendering of how this scenario could have played out, had market forces not prevailed. In an episode entitled "Bart the Mother," Bart's illegally imported Bolivian Tree Lizards escape, and Lisa worries they'll breed and obliterate the pigeon population.

LISA
But isn't that a bit short-sighted? What happens when we're overrun by lizards?

PRINCIPAL SKINNER
No problem. We simply unleash wave after wave of Chinese needle snakes. They'll wipe out the lizards.

LISA
But aren't the snakes even worse?

PRINCIPAL SKINNER
Yes, but we're prepared for that. We've lined up a fabulous type of gorilla that thrives on snake meat.

LISA
But then we're stuck with gorillas!

PRINCIPAL SKINNER
No, that's the beautiful part. When wintertime rolls around, the gorillas simply freeze to death.

We hope Senator Dodd (D-CT), Senate Banking Committee Chairman, catches that episode in rerun as he prepares additional congressional hearings to "solve" the sub-prime "problem." Senator Dodd is concerned over a "pattern of neglect" from regulators. Picking up the theme, Congresswoman Carolyn Maloney (D-NY) has said, "What is important now is for those who are in a position of power to help protect homeowners and stabilize the system." She further underscores Congress's need to "lessen collateral damage."

Is this how those crocodiles felt after eating the poisonous toads?

While Congress debates which exotic animal to sacrifice next on the solutions-to-non-problems altar, the market seems to be taking care of itself nicely. Traditional lenders, without a governmental musket to their temples, have been ratcheting lending standards to protect themselves from overexposure to risky borrowers. Turns out, banks are in business to make money—they don't like when more borrowers than expected default. Try as they might, we doubt Congress will uncover a conspiracy among bank CEOs to drive themselves out of business solely for the delightful Schadenfreude of bankrupting homeowners with low FICOs. Seems to us, a rational CEO, when approached with such a scheme, would decline, saying, "Nah, I prefer keeping my job and my huge salary. But good luck with your evil conspiracy."

Meanwhile, funds awash with cash are buying sub-prime loans from troubled niche lenders, greatly diluting the risk. In case you think that solves the problem, House Financial Services Committee Chairman, Barney Frank (D-MA), has a brilliant idea:

Write legislation holding sub-prime mortgage buyers responsible for flawed loans. When someone pointed out that would likely remove the incentive for sub-prime lending, Frank said that was really his aim. No more sub-prime loans. Ever. We're not sure what scores of low income families, single moms, and first time home buyers ever did to Congressman Frank, but apparently, he feels these people aren't allowed to be homeowners. We disagree.

We've stated repeatedly the sub-prime "problem" won't have the impact hyperventilating pundits fear. But maybe we're wrong. Maybe Congress will succeed in passing such draconian legislation, no one will ever be interested in writing a mortgage again, and we'll all be homeless. Hey—at least there won't be two Americas!

Meanwhile, flesh eating frogs have invaded ponds in San Francisco's Golden Gate Park. Instead of denying loans to high risk borrowers, perhaps Congressman Frank can simply sic the frogs on naughty defaulters.