The subprime mortgage collapse for dummies
For all the hoopla about subprime mortgage woes, the media do a fairly bad job of explaining how this problem could even come about in the first place. These are complex phenomena that can be difficult to interpret, because they're so large that it's difficult to see the whole thing. It has taken me until recently to connect the dots and figure out to my satisfaction why it happened. First, the core problem of the subprime mortgages is that many - many... many - U.S. mortgages were given away to people with incomes too low to repay them in the long run. The loans were made, however, because the people were able to pay them in the short run. The reason why people were able to pay these loans in the short run were two-fold. First, some loan-givers offered introductory low rates that may have actually been loss-leaders. Second, interest rates throughout the U.S. economy were low. Interest rates across the economy are determined by the central bank. In the case of the United Sta