Paying for Subprime

Prior to 2006, very few people were concerned with the idea of financing subprime mortgages. Most people did not even know that these type of mortgages were even a problem. The stock market was booming, many corporations, especially homebuilders, retailers and commodity driven companies were hitting all times highs. No need to worry, right?

Nothing could be further from the truth. While all the Wall Street mavens and professionals, including CNBC Anchors, were basking in their glory, there was a huge problem with the underpinning of the United States economy. There were way too many subprime mortgages being funded. Many of these had a very high chance of failure if the economy turned south even in the slightest way. The growth of the housing market over the 1990s and early 2000s made everyone feel invincible financially. If the value of your home was increasing at a rate of 10% a year, then why not invest a lot of that money in the stock market and have all kinds of money to play with after the gains. Sadly, this is what many Americans did. When the housing market started to fall, their portfolios tanked as the stock market took a beating.

When fear set in, everyone liquidated every investment vehicle they were a part of. Many of these investment vehicles had strong fundamentals, but when all the money is taken out of these investments there is only one place to go and that is down. Now that everything has fallen due to the fact that America cannot finance subprime, what is the next step?

Do taxpayers bail out all the defaulting subprime loans? This seems to be what is going to happen. Sadly, those who were financially sound with their money will be paying for all of those who took on huge risks and lost it all.