Dangerous nonsense

Democrats called on President Bush Friday to endorse their proposal to authorize bankruptcy judges to reduce loan amounts and interest payments for homeowners facing foreclosure.

"Still the administration refuses to step up to the plate and do what's needed," whined Sen. Charles Schumer, D-N.Y. "The administration joined by (congressional Republicans) in their Herbert Hoover-like attitude of do nothing, twiddle your thumbs while the economy gets worse, especially in the housing area, is not going to sit well with the American public," Sen. Schumer told reporters.

It's one of the senator's favorite lines. And it's wrong.

Modern scholarship -- start with the late Murray Rothbard's "America's Great Depression" -- shows President Hoover, "The Great Engineer," was not a "do-nothing." He burned the midnight oil pressuring businessmen to keep wages and prices high in 1930 and 1931 -- which turned out to be precisely the wrong thing to do, helping turn a popping bubble of speculative stock prices into a decade-long Depression.

Sen. Schumer might legitimately criticize today's Federal Reserve for duplicating the same error made in the 1920s -- ballooning the money supply, creating a credit bubble. Instead, he calls for removing a vital anchor of investor faith in the system.

Judges can already require creditors to take nickels on the dollar if a debtor defaults. But at least a mortgage lender gets back his collateral -- the house. Who the heck would loan money in the form of a low-interest mortgage, if judges are empowered to unilaterally alter the terms of that contract later on?

A stable economy depends on the presumption that the courts will enforce legitimate contracts. President Bush should stand firm in his refusal to endorse this dangerous nonsense.