2Sizing Up Subprime

Imagining how something as obscure as a subprime mortgage loan could have brought the global financial system to its knees and pushed the U.S. economy into recession might be hard. It’s particularly strange because such loans, designed for people with a dark mark on their credit records, were, at most, marginal financial products for most of their quarter-century history.

Yet in the last year, the word subprime has come to stand for something much bigger: an unprecedented, broad-based erosion of credit standards. During the subprime lending frenzy, practically anyone could get a mortgage. Loans were streamlined, stripped of most controls, and offered freely under conditions that would have given most traditional bankers nightmares. ...

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