PAUL KRUGMAN: A Catastrophe Foretold

[babylonsister]

A Catastrophe Foretold


By PAUL KRUGMAN
Published: October 26, 2007

“Increased subprime lending has been associated with higher levels of delinquency, foreclosure and, in some cases, abusive lending practices.” So declared Edward M. Gramlich, a Federal Reserve official.

These days a lot of people are saying things like that about subprime loans — mortgages issued to buyers who don’t meet the normal financial criteria for a home loan. But here’s the thing: Mr. Gramlich said those words in May 2004.

And it wasn’t his first warning. In his last book, Mr. Gramlich, who recently died of cancer, revealed that he tried to get Alan Greenspan to increase oversight of subprime lending as early as 2000, but got nowhere.

So why was nothing done to avert the subprime fiasco?

Before I try to answer that question, there are a few things you should know.

First, the situation for both borrowers and investors looks increasingly dire.

A new report from Congress’s Joint Economic Committee predicts that there will be two million foreclosures on subprime mortgages by the end of next year. That’s two million American families facing the humiliation and financial pain of losing their homes.

At the same time, investors who bought assets backed by subprime loans are continuing to suffer severe losses. Everything suggests that there will be many more stories like that of Merrill Lynch, which has just announced an $8.4 billion write-down because of bad loans — $3 billion more than it had announced just a few weeks earlier.

more...

http://www.nytimes.com/2007/10/26/opinion/26krugman.html?_r=1&ref=opinion&oref=slogin

[acmavm]

1. What a friggin' fiasco. Where are these people to go to? What

do they do next?

I believe that everybody is entitled to a 'home'. Somewhere where they can lay their heads at night safe from the world, somewhere that belongs to them. But some people were greedy, some were fools. And some were just greedy fools.

What's next.

[1932]

2. A lot of people made a lot of money in salaries and christmas bonuses skimming off

the massive amounts of money changing hands.

And when it all crashes, the people who have the cash in the bank will be doing even better when measured against all the people who will be suffering and who will be willing to work for less and sell their assets at fire sale prices.

Boom and bust works out really well if you're connected to the people who control the booms and busts.