Citi Bows Before the Politicians

The WSJ gives an instructive lesson about what happens when a bank owes its existence to the federal government - it becomes nothing more than an instrument of the politicians. Take Citigroup, which has consented to allow judges to unilaterally renegotiate the amount and rate borrowers owe on home mortgages.

Until Washington embraced the politics of housing panic, even sensible Democrats recognized that allowing such mortgage "cramdowns" was a terrible idea, sure to punish future borrowers with higher rates as lenders calculate the increased risk. The Congressional Budget Office warned in January 2008 that such a change could result in higher interest rates for homeowners and bigger caseloads in bankruptcy courts. In 2007, 16 House Democrats signed a letter opposing similar legislation.

Having spent the past year committing taxpayer trillions to support American banks, Washington now seems not to mind at all if its latest bailout drives up bank losses on mortgages, credit cards and other loans. The Senate could soon make Paulie [from Goodfellas] look like a reasonable business partner.

The nationalization of the economy is well under way in the U.S. Dow 5,000 anyone?