Barney Frank = Bad Idea

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From Friday’s NY Times article Lawmakers Aim to Curb Loan Abuses:

Representative Barney Frank, the Massachusetts Democrat who heads the House Financial Services Committee, said in an interview on Friday that he intended to move legislation in the coming weeks. He said the measure he was preparing would discourage abusive loans by imposing legal liability â??up the chain.â?? It would give borrowers and others the ability to sue the Wall Street firms that package those mortgages and then sell them as mortgage-backed securities, as well as the purchasers of those securities in the secondary market.

I don’t know on which planet it makes sense for an end investor to be sued for simply holding an investment. There are shareholders investing in all types of industries who have harmed or continue to harm the public and are not susceptible to this type of witch hunt. The share holders of cigarette makers are not individually sued because their product causes lung cancer. Holders of mortgage backed securities should not be sued because individuals are in bad loans.

I believe strongly in legislation that protects consumers. Legislation that holds the companies that make bad loans accountable may work. Personally, I believe enforcement of existing laws would be the more prudent action. I do have a problem with investors being sued for buying investments from those companies. Hold the companies responsible for the product they create; don’t open a pathway for an endless barrage of lawsuits of various merit being served to people many steps removed from the companies that made the loans.