The Subprime Thing

August 7th, 2007  |  Published in etc

Daniel Gross: Subprime Nonsense from the Government:

If the containment policy of the Cold War worked as well as this subprime-mess containment policy, we’d all be speaking Russian and living on collective farms. So far, the subprime catastrophe has been “contained” to the growing list of subprime lenders that have failed. And to some pretty big hedge funds in New York, Boston, and Australia that traded the toxic junk produced by the subprime lenders. And to the investment banks that managed some of those hedge funds and lent money to them. And to some nonsubprime lenders, the biggest of which, Countrywide Financial, last month reported declining earnings because of rising defaults. And to smaller nonsubprime lenders like American Home Mortgage, which just five weeks after assuring investors it would stabilize, filed for Chapter 11 this morning. And to the more than 6,000 laid-off American Home Mortgage workers, who, before last week, were utterly insulated from the ravages of the subprime market.

Al and I watched “Maxed Out” on Sunday. The NYT review discounted it, saying the documentary “gathers facts, opinions and impressions and tosses them into a blender. And its story is still unfinished.”

I don’t know if the unfinished state of the story really counts as a structural flaw in this case, but it’s true that “Maxed Out” isn’t as coherent as it could be. I was still left with one indelible moment: A woman says of the likelihood that she’ll die making the minimum payments on her insurmountable debt “that’s sort of what I’m counting on.”

The last graf of the Gross piece sort of ties “Maxed Out” to the current subprime situation:

Bernanke and Paulson aren’t entirely wrong in insisting that the subprime mess is contained. The virus, which traces its origins to unhealthy lending practices, is contained—to any entity whose livelihood, business model, or stock value rests primarily on the cheap and easy availability of credit.

I’m sorry he doesn’t mention the people who are going to be savaged by these entities as the foreclosures pile up.

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