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It really doesn't get any stupider than this. Bloomberg:

U.S. lawmakers want to stem the rising number of mortgage delinquencies by targeting investors who finance such lending through the purchase of bonds backed by home loans.

The top Republican and Democrat on the House Financial Services Committee both said they want laws making investors who buy mortgage bonds liable for deceptive or bad loans. An agreement by lawmakers in two parties to increase investor liability for abuses in subprime lending increases the chances for legislation to pass this year.

Putting the burden on investors may deter the subprime mortgages that have pushed delinquencies to a four-year high by making it more expensive for lenders to make and sell the loans, Representative Spencer Bachus, a Republican from Alabama, said in an interview in Washington.

This violates a bedrock axiom of regulatory theory, which is that regulatory burdens should be placed on the economic actor who can most efficiently bear them. Bond buyers are in no position to police or bear liability for the potentially unknowable acts of non-compliance by lenders in the field. But there's one bright spot in this dark idea -- it will be a boom for trial lawyers. Just think of the deep pockets they can sue...

Update... Reader Andrew Terhune observes,

Aren't investors who buy mortgage backed bonds already liable in a very real sense? Isn't their money on the line? If the mortgages are in default, their bonds don't get paid. Seems pretty simple to me, and self regulating.

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