There appears to be no end to blindly stupid lending practices. There is a cure of course and that is legislated forced liquidation under a trustee. Use legislation to unilaterally allow payouts equivalent to the original principal received in the event of default. It is certainly unfair to the lenders but stupidity does demand a proper reward.
My point is that a state can act unilaterally and as Ellen points out the State or even large communities can shift over to the North Dakota solution as well and suddenly you have a dedicated lender who wants to support your new gym without working the paper.
The sooner lenders understand the real cost of these practices the better. Do they expect the Fed to again bail them out? I stated in 2008 that all failed AAA bonds should have instantly caused the arrest of all enabling signatories for treason against the USA. Several hundred ongoing treason trials, preferably in Texas would have driven the lesson home even if we did not return to the pre 1998 dispensation in which lenders could not be out brokering. Now our national loan portfolio is been run by commission hounds and everyone understands just how that will work out. How many more painful lessons do we need?
Swimming With the Sharks: Goldman Sachs, School Districts and Capital Appreciation Bonds