A government is a body that has the authority to make and the power to enforce rules and laws. The perfect balance for a government responsible to a capitalistic democracy is to enact rules and laws that have minimal interference with the free markets.

The subprime mortgage problem was created by four parties: Lenders, borrowers, investors and investment bankers. The creation of failing subprime mortgages was brought about by the lenders and the borrowers. The creation of failing mortgage investments was brought about by the lenders, the investment bankers and investors. All of the negotiations between these parties were done in a free market. There were no laws broken. If laws were broken, then those who broke the law should be prosecuted.

With the exception of illegal actions, NetGain believes that the government should not be involved in altering the terms of the agreed to mortgage contracts and investments. If the government wishes to help borrowers at risk of losing their home, there are others ways to do this beside changing the terms of the mortgage contract (i.e. reduce real estate taxes or other tax liabilities, offer low cost long-term loans, etc.). If the government were to affect any changes within the agreed to mortgage contracts, then they would also alter the risk and yield that future lenders would be willing to assume. The end result would be an upward pressure on the rates charged to borrowers and the credit scores of the borrowers. The costs would be born by the future home buyers and extracted from the homeowners by reducing equity.

The parties that created this problem are the ones that should resolve it. Will there be pain? Yes, there will be pain. The prior Chairman of the Federal Reserve, Alan Greenspan, recently said: “History has not dealt kindly with protracted periods of low risk premiums assigned to high risk investments.” NetGain would say it more plainly. “The free markets always punish the greedy and naive.”