The real cause of sub prime lending

Re: Wells returns to sub prime lending

The author blames the banks, as if for some unknown reason bankers simply choose to expand lending to sub prime borrowers. But the real source is the Fed’s artificial lowering of the interest rate, which sets in motion a chain of events which force banks to make what will become bad loans. Home buyers find that the carrying cost of owning a home has fallen. The most expensive component of the monthly carrying cost of a home is interest. So, drop the interest rate and this component opens up a whole new class of what appears to be worthy borrowers.

It ain’t the banks; its the Fed! Patrick Barron

This entry was posted in News/ Lessons. Bookmark the permalink.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s