Thursday, July 19, 2007

Fed Chief estimates subprime fallout at $100,000,000,000

In comments to congress today, Federal Reserve Chief Ben Bernanke said the subprime fallout could result in as much as $100,000,000,000.00 in losses for lenders. That is a lot of zeros.

During the hearing, Ben Bernake said the "Federal Reserve is taking measures to protect borrowers." Then congressmen aggressively questioned him about whether the measures to protect the borrowers were being taken quickly enough.

The question I have is:

Why isn't anyone talking about what can be done to help the lenders?

It is, after all, the lenders that will be incurring the $100 billion dollars in losses. I know there are some predatory lenders out there and I don't have a ton of sympathy for some of them. But, I also find it hard to sympathize with borrowers who got into more debt than they could afford at terms they didn't bother to read. In the end, some borrowers will end up having to find a more affordable place to live, but a lot of lenders and investors will be left holding an empty bag.

It will be interesting to watch and see whether any of the subprime loan fallout spills over into higher defaults on subprime loans on Prosper. If so, should we be asking what we can do to help those HR borrowers that can't make the payments on those loans?

1 comment:

thisguy said...

Help the lenders? The lenders are the CAUSE of this issue - if they did not RELAX standards because the supply of buyers was running out, hence trying to keep up the pyramid scheme of real estate this would not of happened. The lenders are the main fault here.

Why do you ask how this is different from Prosper? In some ways it is not , but also most borrowers are not total crooks in real estate - most were people frozen OUT of the real estate market due to lending standards set @ X for decades. Then in past 5 years, lending standard have been restricted less and less and people who were considered too high a risk were now allowed into the housing market so lenders could make profit off of them. It would be like if Prosper existed for 50 years only lending to AA thru D. Then as the availability of AA thru D borrowers dried up, to create a new market, the lender (Prosper/Prosper lenders) allowed their standards to fall to get more business. So they expanded to E and HR borrowers to 'generate business'. Whose fault is that? The lenders for relaxing standards. Greed.