causes of subprime crisis

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World Review Oct. 30, 2007Political 'solutions'by Thomas Sowell

'Why were borrowers taking out risky loans in the first place? And why were lenders willing to lend to risky borrowers? In both cases, the government was a prime factor in "subprime" loans.

Many people took out risky mortgage loans to buy a house because housing prices were so high that this was the only way they could own a home. Where housing prices were highest, the most people took out risky loans.

In the San Francisco Bay Area, where housing prices are the highest in the nation, risky interest-only loans went from being 11 percent of all new mortgages in 2002 to being 66 percent of all new mortgages in

2005.

Study after study has shown that housing prices are highest where government restrictions on building are the most severe. That is the ugly result of pretty words like "open space."

Why were lenders lending to people whose prospects of repaying the loans were below average - that is, "subprime"?

Government laws and policies, especially the Community Reinvestment Act, pressured lenders to invest in people and places where they would not invest otherwise. Government also created the temporarily very low interest rates that made the mortgages seem affordable for the moment.'

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Beliavsky
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bondguy1824

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