The incredible fact is that these loans are an expected result of 15 years of government propaganda about mortgage loan "discrimination." Some genius noticed that the loan markets tend to favor people with good credit histories and some savings built up over time. And then some other genius noticed the demographic fact that these credit histories, in general, parallel racial demographics. Hot button! And so the pressure was on to lend as if the prospect for repayment didn't matter.
The loans in this category were only viable if we presume that housing equity would rise forever. Then it works like magic. It's like an economic perpetual motion machine. You borrow and borrow and the loan pays itself off. Crazy? Yes, it is, but such is the craziness of any inflationary environment. It leads people who should know better to believe that the impossible is happening.
It was not just the subprime market but the entire housing market that has been wildly distorted through intervention. The money lent has had no economic justification, and the low interest rates are unsustainable.
~ Lew Rockwell, "The Mirage of the Mortgage Fix," LewRockwell.com, December 12, 2007
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