My New Hero and New Villain

Arnold Kling

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The hero is Edward J. DeMarco, the acting regulator of Freddie and Fannie, who has tried to resist pressure for principal reduction on mortgages. For example, Annie Lowrey reports,

Mr. DeMarco warned that allowing principal reduction might encourage some homeowners to stop paying their mortgages for the assistance, increasing the costs of such a policy. Moreover, he cautioned that it would aid fewer than one in 10 of the 11 million homeowners who owe more than their house is worth.

The villain is Christine Lagarde, the IMF director who piled on the pressure for principal reduction.

If we should have an International Monetary Fund at all, it is because there is such a thing as macroeconomics. Macroeconomics is not about targeted bailouts. It is about fiscal and monetary policy.

I am sure that Mr. DeMarco is close to caving, but for now he deserves a "profiles in courage" award.

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Latest Comment

John Wilkins writes:

I think the IMF is one of the most dangerous, out-of-touch organizations in the world. Everything they do and every forecast they make is variably wrong. I think the IMF has done far more damage than good.

Posted April 13, 2012 11:11 AM

Jeff writes:

Many of the homes with underwater first mortgages also have second mortgages. If the principal on the first mortgage is reduced without first canceling the second mortgage, the holder of the second mortgage gets a backdoor bailout. Methinks that's what's really driving this proposal.

Posted April 13, 2012 12:40 PM

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