Krugman, today:
The explosion of “innovative”
home lending that took place in the middle years of this decade was an
unmitigated disaster…
I use the words “unmitigated disaster” advisedly.
Krugman says that the explosion in subprime lending did not broaden
homeownership, while it massively increased the number of people
burdened by debts they couldn’t afford, not to mention the “duped
investors”.
There is another view. In a comment on one of my blog entries earlier
this month, the New Yorker’s Jim Surowiecki wrote:
I think that the subprime boom probably still has
created more winners than losers, but obviously it’s clear now that the
economic costs of the bust far outweigh the economic benefits of the
boom.
And another business-and-finance columnist, Dan Gross, has even
published an entire book
dedicated to the proposition that “bubbles are great for the economy”;
I don’t think he’s said that the credit bubble (of which the
subprime-mortgage bubble was a part) was any exception.
So, was the subprime boom an unmitigated disaster,
or did it have some redeeming features?
There is at least one class of undisputed winners, and that’s the
people who owned their homes and decided to up and leave the barrio
when their houses became worth more than their lifetime earnings. I
don’t know how many of those there are, but in general anybody who
owned a house at the beginning of the boom and who didn’t feel the need
to join in the cash-out-your-home-equity-and-spend-it-on-a-new-TV game
is now sitting on a gold mine, even if the value of their home does
fall back by 15%.
And then there’s the homebuilding industry, which during the boom years
was responsible for the employment of millions of contractors and
realtors and granite-countertop manufacturers and even journalists
working for glossy magazines full to bursting with ads for shiny new
condos.
But in general I think that most of the winners from this game were
beneficiaries of the housing boom generally, and not the boom in
subprime lending specifically. I’m with Krugman on this one: marginal
lending should happen at the margin, and it became altogether far too
easy and commonplace between 2004 and 2006. The housing
boom might have created more winners than losers; the subprime
boom, not so much.