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Subprime Loans Add to Wall Street Chaos
by Michael J. Hicks
Failure to reset subprime mortgages compounded the problems on Wall Street.
Underlying the current financial turmoil is a significantly dreary problem in housing markets. It is a bit easier to understand, but understanding will almost certainly lead to anger and frustration.
The 1995 revisions to the Community Reinvestment Act specifically permitted sub-prime loans. The intent was laudable enough, to provide lower income Americans a chance to buy homes and force financing to local businesses. The former worked quite well, but in a 2004 academic paper I reported minimal effect of lending on rural businesses. I should note that the first version of the paper was met with a very angry response by an editor whose life’s work focused on microfinance to rural areas. In retrospect it wasn’t the failure of the CRA that caused problems, but rather its success.
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Data Releases
U.S. Trade Balance,
September 2008
Total August
exports of $164.7 billion and imports of $223.9 billion resulted in a
goods and services deficit of $59.1 billion, down from $61.3 billion in
July, revised. August exports were $3.4 billion less than July
exports of $168.1billion. August imports were $5.5 billion less than
July imports of $229.4 billion.