Remember awhile back when Barney Frank was actually making some sense in regard to a business matter?
Well, as that post noted, that didn’t last long. Rep. Frank is now advocating that investors in mortgage-backed securities should be liable for the underlying subprime loans that those securities facilitated because the investors violated the “loaned too much money” rule:

“More money was being lent than should have been lent,” Frank said in an interview from Washington. Frank, who last month predicted that the House would approve such a bill this year, said growth in the market for mortgage bonds “provided liquidity without responsibility.” [. . . ]
Lenders this decade have increasingly relied on mortgage-backed securities to fund new loans rather than tap capital from federally insured bank deposits. Frank called the process flawed, saying that as a subprime financing mechanism, banks’ exposure to the risk of default is excessively diluted.
By dispersing risk, the bonds fueled reckless and unscrupulous lending and compromised underwriting standards, he said. “There should be a decrease” in the money available for subprime mortgages, he said.

H’mm, the markets have already caused a dramatic decrease in the money available for subprime mortgages (without new legislation, mind you). Underwriting standards have tightened and the lenders with poor controls are already being washed out of the market. Investors who could affort to do so poured too much money into the subprime mortgage market, those investors got burned, and now the market has adjusted. But after too much money was poured into that market, just how little money does Rep. Frank want to have available in the future for people who cannot qualify for a conventional mortgage?
Rep. Frank’s proposal to penalize bondholders reflects that he doesn’t understand what has happened or simply doesn’t care because of political considerations. The growth of mortgage-backed securities has made the U.S. mortgage market the most efficient and productive mortgage market in the world. Rep. Frank wants to harm that market. Go figure.