Small silhouette of Doug Wolkon WELCOME TO PLURANOMICS, THE ECONOMICS OF MANY.

Unemployment

Subprime is a Fancy Word for Too Much Debt

Subprime is a fancy word for too much debt. Adam Smith would actually say that housing over and above shelter has no utility value. If that is true, we are in for some serious additional write downs (think second homes).

On another note, Subprime could have worked if the loans stayed true to their risk and were made at “loan shark” type rates (5% “money-down” should have warranted a 20% rate; instead we were lending it at 7-10%). As a result, we were only realizing less return on a greater expense in the form of lower and lower investment rates (Menger, Say, Smith, Jevons and others), but more risk. Continued »