Subprime sinkhole

Subprime mortgage meltdown is depressing the economy

Date published: 8/23/2007

GOV. KAINE has asked state agencies to prepare for a 5 percent budget decrease. Why has Virginia's sunny economy suddenly turned cloudy? A large factor is the decline in the real-estate market. Home sales are down, foreclosures are up, and what was a whirling engine in the state's financial well-being is sputtering. One major catalyst: the national subprime-mortgage meltdown.

Subprime mortgages are B-rated loans, often written to people with poor credit histories or relatively tight incomes. Their deliciously low initial interest rates are seductive, but buyers often find themselves in serious debt a few years later when those rates skyrocket.

The result? Foreclosures during the last year have doubled. Housing prices are in their steepest decline since 1989. Lenders, stuck with foreclosed properties, can't recoup their investments. Some have gone bankrupt and others are laying off workers. Also, companies linked to home-buying such as Home Depot and even Wal-Mart are seeing their profits fall.

Experts looking to point the finger of blame for this debacle are indicting everyone from home buyers who overestimated their wherewithal, to mortgage lenders who enticed buyers in over their heads, to hedge-fund wizards looking for quick money, to Wall Street, and, finally, to government, which some say failed to exercise strong oversight.

On a deeper level, though, it seems our foolishness as a society has finally caught up with us. We've overbuilt, overbought, and overfinanced, and now our overreaching threatens to suck us into a riptide of drowning debt.

In the days after World War II, the American Dream consisted of a little two- or three-bedroom Cape Cod or a rambler on a quarter-acre lot. Those tiny homes would fit inside the garages of some of the behemoths Americans insist on inhabiting today. Developers won't even build a modest house like the Greatest Generation rejoiced in owning. Financiers, focused on easy, quick money, encourage people to "buy up."

Virginia and the rest of the country, though some belt-tightening is certain, will survive this downturn. Still, a little soul-searching is in order. Maybe we could all start by defining the word "greed."

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Date published: 8/23/2007