Talking about How did a Relatively Small Number of Subprime Loans Cause a Record Crisis? | Benzinga.com

 

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How did a Relatively Small Number of Subprime Loans Cause a Record Crisis? | Benzinga.com

number of analyses of the U.S. and global crisis begin by attempting to explain what they assume to be a paradox – how could so small a market segment (subprime housing and CDOs backed by subprime) have caused (1) the largest financial bubble in history, (2) a U.S. economic crisis, and (3) a nearly global crisis? To these scholars the obvious answer is that subprime lending could not have caused this traumatic trifecta. If follows that the importance of subprime lending must be overstated and there must be other, more powerful causes of the trifecta.

I will show that the focus on subprime loans was excessive and allude briefly to the points I have made in prior columns about the variant causes of the global crisis. The next column will address in more detail how criminologists determine the true incidence of mortgage fraud. Subprime loans were and are a serious problem, but there has been a destructive overemphasis on subprime loans as the core of the U.S. crisis. “Liar’s” loans are a far greater problem, and most problem subprime loans are actually liar’s loans. While the nonprime mortgage industry’s preferred euphemisms were “alt-a” and “stated income” loans, it was the industry that accurately dubbed them liar’s loans. It was the industry that created liar’s loans and it is liar’s loans that made so many officers wealthy.

Read more: http://www.benzinga.com/economics/11/01/744936/how-did-a-relatively-small-number-of-subprime-loans-cause-a-record-crisis#ixzz19z9y3nT8

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