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A Catastrophe Foretold

(2007-10-26 11:33:35) 下一個

A new report from Congress’s Joint Economic Committee shows that 2 million American families will lose their home next year because of foreclosures. 

In 2004, Mr. Gramlich, a Federal Reserve official, predicted the high level delinquency due to the increased subprime lending and other abusive lending practices. People asked why nothing was done to avert the subprime mortgage fiasco.  

The answer is ideology.  Couple years ago, more than half the mortgage loans were made by independent lenders without any federal supervision from the laissez-faire ideology. People believed in free market and took the regulation as a bad thing. In the end, unqualified people were duped into buying unaffordable houses, causing the burst of the housing bubble that trapped people in the debt. Perhaps, this subprime catastrophe can remind us to think about financial regulation in the first place.

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