Business Week has two quotes that caught my attention in their
article about Ben Bernanke’s financial policy.
"Wall Streeters, with their seven- and eight-figure pay, are hardly
sympathetic figures. Unfortunately for millions of subprime borrowers,
they, too, are directly under the Fed’s interest-rate hammer."
Maybe I just don’t get it, but I don’t have a lot of sympathy for the
subprime borrowers. They took somewhat sketchy loans, but the only
way they’re "under the Fed’s interest-rate hammer" is if they assumed
that interest rates would stay amazingly low while they paid off their
adjustable-rate, often interest-only loan(s). Anyone that ignorant
about how markets work should not be borrowing money. It’s not nice
that they are now suffering the consequences of that naivety, but it
is fair.
Of course, I have even less sympathy for the subprime lenders: they
offered loans to high-risk borrowers and got bitten. That’s what
happens when you take risks, and they certainly ought to be savvy
enough to know what kind of risk they were taking. There’s no reason
they ought to be "bailed out"—which brings me to the second quote,
from Carnegie-Melon’s Allan Meltzer:
"Capitalism without failure is like religion without sin," Meltzer
says. "It doesn’t work."
The subprime lenders, apparently, need to have some long talks with
the god of Sound Investment Strategies…
So help me out, here. Why should I feel sorry for subprime lenders?
What consequences could the failure of these businesses have that I
might care about?
http://www.businessweek.com/investor/content/aug2007/pi2007088_450016_page_2.htm
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