Subprime Mortgage Meltdown

This is an interesting post on the subprime mortgage market, discussing the causes of the current problems, and proposing solutions. It's pretty long, and he tends to repeat himself, but it's very informative.
In summary, lack of sensible supervision and regulation of banks, mortgage lenders and other financial institution – partly induced by an ideology of free market fundamentalism – has been the core cause of this private sector created disaster, not excesses of regulation or of government policy. Thus, to minimize the fiscal costs of cleaning up this mess, use of public funds should be carefully managed and targeted to help the true victims of this mess – borrowers duped by predatory lending practices – while avoiding any bail-out of the culprits of this mess. Privatizing profits in good times while socializing losses in bad times is another form of reckless corporate welfare that generates moral hazard while fostering new bubbles.
He has some interesting ideas for bailing out homeowners while not rewarding the lenders, because simply helping homeowners with their mortgages effectively rewards lenders for distributing mortgages indiscriminately.

1 Comments:

Blogger Plexist said...

The subprime meltdown is pretty interesting, but this is one of the worst stories I've read about it. It's not so much wrong as just spastic. The news stories in the Wall Street Jounral have done a much better job covering this stuff.

One thing that the author is right about, though, is that the WSJ editorial page is wacko. It's so bizarre to read such good news stories and then see such partisan garbage on the editorial page.

3/24/2007 6:28 PM  

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