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"Several candidates made the argument at the debate that the government forced mortgage lenders to make bad loans. But in reality, most subprime loans were made
by icebraining 8y ago
"Several candidates made the argument at the debate that the government forced mortgage lenders to make bad loans. But in reality, most subprime loans were made by companies that were not subject to any kind of federal regulation."
"No executive of a major mortgage company said at the time that the government was forcing them to make subprime loans. They said they did it because they thought they would make money. And even now, after the crash of the housing market, with all the temptation to point fingers, it is awfully hard to find a mortgage executive who echoes the argument"
https://www.nytimes.com/2011/11/10/us/politics/the-role-of-regulation-in-holding-back-business.html?ref=presidentialdebates https://www.nytimes.com/2011/11/10/us/politics/the-role-of-r...
- Someguywhatever 8y agoWas there some incentive from government then, was there some kind of deregulation or some other kind of regulatory change? Why would this subprime lending begin in the first place do we know?
- mikeash 8y agoSubprime is a great way to make money if you can manage the risk. Before the crisis, people figured out that if you bundled a lot of them together and sliced up the bundle in clever ways, you could shuffle the risk around and manage it better. People who wanted riskier assets could get them, and people who wanted safer assets with lower returns could get them too. Except this only works if you actually evaluate the risk correctly. If you underestimate the potential for large-scale default due to, say, a sudden drop in house prices, then everything gets screwed up, and people who bought “safe” assets suddenly find themselves losing their investment.