Nanny Statism.

I just finished watching Kudlow and Co (Bob Pisani was filling in for Larry Kudlow today) and in their Dynamic Duo segment (in which Robert Reich and Steve Moore debate various issues) The subject was HB 4050. What surprised me was that Steven Moore, whom I usually find myself agreeing with, considered this bill "Nanny Statism". While I do understand why he would say so I can not help but disagree. It seems to me that there are essentially four ways in which the government could address the issue of "predatory loans"

1) Outlaw completely the types of loans generally considered predatory. For example Interest only loans, or Balloon Mortgages. Now the issue with that is while these loans can in some cisrsumstances be considered predatory, there are also many situations in which a Balloon mortgage or an Interest only loan, or even an ARM with a prepayment penalty will make sense for some buyers. Outlawing them completely would remove this option and in my opinion be the second most "nany statist" of the four options I can envision.

2)The government could require that some local regulator "approve" any mortgages for those earning below certain benchmarks (or for all people). This is the most "nanny statist" option as it would literally place the government in a position to have the power to determine for people which loans are best for them.

3) The government could do nothing at all. While this might be the most attractive from an economic standpoint. It is completely untenable from a political standpoint.

4) The government could take the tack chosen by Illinois in HB 4050, in which one hour of education is required of all first time home buyers and/or refinancers (as well as any considering loans which include the clauses listed above) . While this does place the government in a position to dictate to purchasers, it does so IMO in the least invasive way. After counseling those purchasers who still wish to obtain their loan, under any terms, may do so. It does not place the Government in a position to dictate which loans a purchaser may or may not consider, nor does it allow the government to dictate which loans may or may not be offered or to whom such loans may be offered. In my opinion it does the best job of allowing purchasers and lenders the freedom necessary to come to mutually agreed upon terms, while also doing the bare minimum necessary to ensure that both actors have the information necessary to protect their own interests. While there is an element of "nanny statism" it is both minimal and IMO justified. However I am worried that this may create a precedent which could go farther. Only time will tell.