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March 08, 2009


Susan P. Koniak

Thank you for writing about our op-ed. And, of course, you're right about how difficult it will be to get public support for our plan, even though it requires bondholders to bear the costs of the reductions of principal, not taxpayers.

But I think you wildly overstate the danger of irresponsible refinancing in the future and the need for additional bureaucracy and regulation to stop it. No one, I mean no one, can force a lender or an originator of securities to give them an irresponsible loan of any kind. By placing the costs of bad lending in the past on the lenders, those in control, our plan builds in an enormous disincentive, if the current state of the toxic assets wasn't incentive enough, not to repeat the lending (not borrowing, the LENDING) mistakes of the past.

As to the injustice of providing principal reduction to those homeowners who irresponsibly refinanced in the past, again some institution gave them those loans and, if the borrower lied, failed to conduct adequate due diligence, which would have uncovered most, if not every, lie. So, again, our plan is directed at the leaving the pain where it can do the most good, the lenders, the banks, the bondholders. Theirs is the moral hazard we need to worry about.

Thanks again for treating our idea with thoughtfulness. Susan P. Koniak, Boston University Law School

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