Matt Berger passed along this article to those of us on his email list, in which the argument is made that subprime mortgages should be banned.
I am usually wary of simple solutions, but in the case of subprime mortgages, I really think the problem would be solved if a lender were barred from selling or transferring a mortgage for a period of, say, five years. The fundamental problem with the subprime market appears to have been that a system was created that allowed the person making the loan to immediately and deceptively pass on the risk of default. Under those circumstances, why not lend to anyone? In the olden days, banks lent out their depositors money, serviced the loans, and dealt with the consequences of default. They tended not to lend to people who weren’t going to pay them back.
I’m sure our modern day wheelers and dealers could explain why this just wouldn’t work in our modern financial world. I’d like to hear the explanation.
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