andy, in a true free market, I’d agree with you, but it’s not a completely free market.
Here’s how the pols do it: Cajole banks into lowering the reset rates. In return, lower the fed funds rate to increase banks’ margins for as long as it takes to make it up to them. If banks don’t participate, you get rough with them. It’s not going to look good if they are pushing people out of their homes, so it’s easy to destroy a banks’ good public image and force them onto the ropes. Make an example of one or two renegade banks and they’ll all fall into line. Better yet, make it clear you will make an example of any renegade bank and they’ll all fall into line before they get into trouble.
So who pays so that the borrowers can get a better-than-market deal? Savers who deposit money in banks or money market funds.
