--- Jordan Hayes <jmhayes at j-o-r-d-a-n.com> wrote:
>
> Yes, and this is important: the sub-prime market
> didn't come about as a
> way to dupe people with lower credit scores than the
> primes; it came
> about because it once you get your risk-management
> systems in order, you
> can calculate fairly well what a particular drop in
> creditworthiness
> "costs" and make up for it on the cost end.
>
[WS:] How do you know that?
I contend that the subprime market came about to boost consumer spending, as a great deal of these mortgages involved refinancing of existing loans and mortgaging existing equity. Stated differently, they figured that duping people into "free money" by mortgaging their homes would induce them into going on shopping sprees. This is better than unsecured credit card debt because it gives th elender some recourse if the debtor defaults, whereas credit card debt does not (new bankruptcy laws notwithstanding).
The risk management & prediction seems like a rather trvial explanation - it is a matter of relatively simple math that insurance firms have mastered long time ago. It thus is not something that creditors only recently mastered.
In short, this was actually a scam to "free" assets locked in home equity for consumption.
Wojtek
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