November 26, 2007

Suffer the Subprimers

For all but the most blissfully unaware of readers, the current brouhaha in the financial markets stemming largely from the continuing collapse of the subprime mortgage market should not be news. Markets first seized up this summer following stagnating house prices across the country and higher than expected defaults. Since then, much blood has been let: several companies that were major originators of such mortgages have gone belly up; thousands of jobs have been (or are soon to be) cut; and in the last month or so, two CEOs of large (investment) banks (Stan O'Neal, Merrill Lynch; and Charles Prince, Citigroup) have been pushed out amidst historical writedowns associated with subprime losses.

With shit hitting the fan so fast and so hard, it seems nothing—perhaps not even the U.S. economy at large—will come out unsullied. As with any mess of this proportion, our faithful representatives in Washington D.C. have only recently arrived upon the scene, mostly to point fingers at one other ex post facto, or, in the alternative, at evil-doers of one sort or another. And almost without fail, their solution has been to punish corporations that made such loans, and force those who hold the debt now to alleviate the stress on homeowners. An article in today's Wall Street Journal highlights pressure exerted upon one such company (Citi) to help out borrowers facing large and untenable interest rate resets, and thus, a rather significant risk of losing their homes. For some reason, very few people seem to be concentrating on the misdeeds of the borrowers rather than those who gave them the money; at the risk of sounding like the unsympathetic bastard that I likely am, I will take up this position that no one seems willing to defend. [...]