Sympathy for the Sub-Primers?

I’ve had a crappy day ending a less-than-stellar week. So I’m going to take this opportunity to get something off my chest that’s been … what? … on my chest? … ever since this whole sub-prime lending debacle started coming to light.

To put it succinctly, I don’t think we should do much about it. No freezing or capping of interest rates on mortgages. No government bailout of either lenders or borrowers (except in very specific circumstances, see below). Maybe some changes in the law if it’s determined that there was abuse of the system.

Why do I feel this way? Because I think people and companies should learn that they have to live with the consequences of their: (a) greed, (b) stupidity, and/or (c) laziness.

No doubt there were instances of unscrupulous mortgage brokers who took advantage of unsuspecting borrowers in such a way that the borrower had little or no chance to know what they were getting themselves into. And those cases should be prosecuted to the full extent of the law. And if the current laws aren’t strong enough, then they should be amended. However, I would be willing to bet that’s a very small percentage of all those who now find themselves in trouble. And even when that did happen, what about the institutions that ultimately signed off on the mortgages to those people? Where was their due diligence?

All of these people and companies, borrowers and lenders, wanted to get in on the hot housing market. They all saw $$$. They all deluded themselves into thinking that housing prices would continue to soar at a double-digit pace, maybe not forever, but at least long enough for them to make their money. And many people did, over a pretty long period of time, too. That’s the greed.

The stupidity? That was in believing that it would continue on indefinitely, coupled with, in some cases, believing that a person with a real income of, say $50K/year, could afford a $500K house with little or no money down.

Laziness I’d attribute mostly to the lenders. Banks that lent large sums of money to people who would never be able to afford the loans once the rates began to adjust. Is there no one at these companies responsible for vetting potential borrowers? And let’s not forget the companies that invested in sub-prime based investments. Not all companies did (listen to the audio above), only the lazy/greedy/stupid ones.

What we have here is a giant game of Musical Chairs, and the music finally stopped. If you play the game, you might win, but you might lose, too.