Ruth Lee
As Wall Street takes PR hits this week on their poorly timed and ill-conceived bonus bonanza for a job poorly done… it just underscores that we have to rethink what we are doing here. We have to right a ship that rewards failure and establish clear priorities reflected in thoughtful legislation and precise regulation. Wall Street is hugely resilient and has an enormously short memory; we have to ensure that both we and they read their own history.
While cruising around, I found this article that very elegantly discusses the integration of Wall Street and the subprime market. I think it is a must read for anyone looking for insight on the current crisis without the ever present editorializing. A pure history lesson, the author Jeffrey M. Levine takes a fact-based approach to the Wall Street acquisition, strategy and realization of the subprime market. His article is written just as the crash starts… interesting to see it in hindsight.
As to blaming Wall Street for subprime, to be sure, subprime existed well before the 2000+ acquisitions, but no one familiar with the late subprime market could not pinpoint the turn from old school subprime – circa 1997, (with lenders often the last to give up traditional underwriting (1×30, 2×60)…enter First Franklin) to new school subprime with wage-earner stated loans to 520 FICO…run it through the system, if it takes it – you’re golden. With rates only marginally higher than agency, why bother with all of that verification, with AUS – who needs an underwriter that can read a credit report? (Mortgage Banking Article)
As a follow up, this is another great article which discusses the rise and fall of subprime on Wall Street – a nice explanation of some of the more obscure topics, like CDOs and MBSs without getting too, too wonky. (Subprimer Article)
