Monday, September 3, 2007

Subprime Homesick Blues

If subprime lending consisted only of lenders exploiting borrowers, after all, it would be hard to understand why so many lenders are going bankrupt. Focussing on lenders’ greed misses a fundamental part of the subprime dynamic: the over ambition and overconfidence of borrowers.

Borrowers were not passive recipients of this money—instead, many of them used the lax lending standards to make calculated, if ill-advised, gambles.

Many just fell victim to well-known decision-making flaws.

Another thing that led subprime borrowers astray was their expectation that housing prices were bound to keep going up, and therefore the value of their house would always exceed the size of their debt. This was a mistake

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