Tuesday, December 29, 2009

Subprime Lending Study Confirms Obvious

I know everyone is focused on the underwear Jihad and the health insurance reformation, but you statisticians out there will love this article (Warning: Heavy math) that spends a lot of time proving the obvious about the dangers of the recent socialist attempt to put everyone in a house.

The Havard/MIT(1) Quarterly Journal of Economics published this study last month that showed subprime lending escalating sharply in poorer sections of the country -- while income in these areas didn't grow much or actually declined.

Let me see if I can get this straight -- in the last decade, more and more mortgages were given to people who couldn't afford them, e.g., poor people who lived in poor areas where housing prices don't really go up very well. And then in 2007 it all hit the fan (or a debt-to-income inverse correlation critical threshold thingy) because the incomes in these areas weren't going up with all the new debt these areas were taking on. And the housing values weren't going up either. Wait, I said that already.

It's a very politically correct explanation of the very politically incorrect driver for the recent meltdown of our economy.

It's a formal journal, so you can read the abstract here, and/or download a PDF of the whole shebang if you want to see the math. (Yes, real researchers show you the math -- and tell you all the reasons, theories and assumptions behind that math.)

Based on this sort of timing, we should see an article showing this new healthcare bill has increased the cost of healthcare -- just about the time the major aspects of the bill start taking effect.

(1) Contains twice the ivy-league power of the average economic journal!

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