Beyond “Subprime”

In non-campaign news, it seems that people are waking up to the extent to which the crisis in asset values and credit markets goes way beyond the specific issue of subprime mortgages. Since mortgages are big, and subprime borrowers are the least creditworthy, problems struck in that particular sector in the fastest, largest way. But the issue is fairly general — during a period of pretty stagnant incomes, people have been ratcheting up consumption based on increased wealth derived from their homes. People weren’t, however, actually selling their homes to get money and buy stuff. Instead, they borrowed. But with home values plummeting, now there’s big trouble.