I really don't intend to make a habit out of simply reposting reader comments, but these remarks from Bruce Webb are just too good to not pull up top:
We'll see how this all shakes out. Right now the argument for and against sub-prime pretty much parallels that over firearms:
"Guns don't kill people. People kill people."
Well yes. But having that loaded gun under your pillow while you and your wife have a drunken argument in bed maybe mighta contributed to the tragedy.
I believe in gun rights. I also believe in gun control. I have a lot of the same attitude towards sub-prime. It did put a lot of people into houses. It also put some people into houses with mortgages they couldn't afford.
Now part of that was straight out predation. But a big part is that the economic incentives were all set up in a way that encouraged writing the loan.
And if you look at it dispassionately the market has reacted to that reality and fairly harshly. Because the reality is that the first and continuing victims of the sub-prime crash has been sub-prime lenders. It is not clear whether a disproportionate amount of sub-prime borrowers are going to lose houses or end investors lose huge amounts on those bundled securities. What we do know is that New Century's stock is sitting at .94 and they have this rather terse statement on their website: http://www.ncen.com/
"New Century Mortgage Corporation and Home123 Corporation are unable to continue the origination or funding of mortgage loans, and no new loans are being accepted."
We saw it start a few months back, sub-prime lenders started going to the wall, the smaller players were dropping literally overnight. The way things are shaping up Wells-Fargo may have this sector all to their own pretty soon. Countrywide is looking shaky.
But this doesn't mean that the loan products didn't make sense in the right hands and in the right markets. In any market correction there is some ugliness at the margins. Obviously sub-prime had its day in the sun and it got awful cloudy awful fast here in 2007. But I would hope we would not overreact. The market seems to be doing a pretty good job taking out the participants who pushed the limits either on the borrowing or the lending side. Sure there are real victims out there, lets just be sure we know how to separate the suckers from the players.
Boy, I wish I'd said that.