Published: December 7 2007 19:33 Last updated: December 7 2007 19:33
The US government’s attempt to stem the growing housing crisis by getting lenders to freeze loans to troubled subprime borrowers is a far from perfect scheme. It involves arbitrary judgments, rewards for reckless behaviour and variations of contracts. But it is justified by the extreme circumstances.
The package negotiated with lenders by Hank Paulson, the US Treasury secretary, is aimed at preventing a further wave of foreclosures over the next two to three years as floating-rate mortgages taken out by subprime borrowers reset to higher rates. Some 1.8m Americans who bought houses they could not afford fall into this category.
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