Tim Fernholz on the need to regulate loans:
“How many people remember the sub-prime crisis of 1991-1993?” William Black asked me the other day. Black is a longtime federal regulator turned economics professor. We were talking about how the collapse of the housing market in 2006-2008 catalyzed today’s Great Recession.
“It’s a trick question,” he continued. “The same stuff was developing, all the non-amortizing loans, all the qualifying of borrowers at the teaser rate. We killed it by regulation, and there was no crisis, period. There were maybe two or three failures of institutions, but hardly in the way of that, either. It always starts out fairly small, and if you squash it when it’s nice and small, there is no systemic problem at all.”
