Subprime is so yesterday as people up and down the income ladder are defaulting on their mortgages in record numbers. After all, why pay off a $400k mortgage on a home that is worth $300K? I thought that everyone understood this point by now. The problem is the collapse of the housing bubble. It showed up first in the subprime market because these were the most vulnerable people, but the collapse of the subprime market is just a portion of a much bigger problem. Anyhow, word has not yet filtered through to the NYT. David Leonhardt asks the question today (I double-checked the date) "how is it that a mess concentrated in one part of the mortgage business — subprime loans — has frozen the credit markets, sent stock markets gyrating, caused the collapse of Bear Stearns, left the economy on the brink of the worst recession in a generation and forced the Federal Reserve to take its boldest action since the Depression?" Of course, if the problems were just in the subprime market we would not be facing a meltdown of the banking system and the worst financial crisis since the Great Depression. The problems run right through the entire $10 trillion mortgage market. That is why the Fed folks are staying up late and working weekends. If it were just subprime, they could deal with it in normal business hours and still have time for lunch.
--Dean Baker
