Proposed subprime bailout gives the shaft to responsible consumers


U.S. Treasury Secretary Henry Paulson is urging Congress to pass pending legislation (subscription required) that would amount to a "bailout" of subprime borrowers. He argues that the mortgage problem has negatively affected the economy, and this will help stop the bleeding.

The proposed legislation would freeze interest rates on certain adjustable rate mortgages (ARMs). So instead of rates increasing under the original terms of the mortgages, some borrowers would receive protection and would not see their interest rates rise.

Sounds great, doesn't it? Well we need to go back to the origins of the subprime mortgage crisis to see. The heart of the problem combines: