Subprime prevention and cure

My new column for National Journal contrasts the administration's proliferating (and most likely inadequate) measures to solve the subprime mortgage problem with the easy steps that, taken earlier, would have averted it in the first place.

If ever there was a case of "an ounce of prevention is worth a pound of cure," the subprime mortgage mess is it. The Treasury Department, late to the issue, is struggling to contain an increasingly scary problem. All of its efforts so far -- and the government, however reluctantly, may yet be drawn more deeply into the crisis -- are second-best and have drawbacks. Big costs for taxpayers are a distinct possibility. Many families will end up losing their homes, and the soundness of the financial system remains in question. If the economy does slide into recession, as many economists fear, the subprime fiasco will be substantially to blame. And yet the whole thing might have been averted if some simple fixes had been made in good time.

This would look like 20-20 hindsight except that at least one authoritative voice on the issue had been calling for action for years. Edward M. Gramlich, a former governor of the Federal Reserve Board, who sadly died earlier this year, did all he could to draw attention to the issue. He was not an alarmist. He insisted that subprime mortgages were, in many ways, a good thing. He underlined their success in broadening home ownership among the less well-off; subprime lending was not the same as predatory lending, he emphasized. But, he also pointed out, there had been poor lending practices and some outright abuse. Regulatory oversight was a confusing patchwork, full of holes. Mending it would not be difficult -- but if the job were left undone, the country could have a problem on its hands. And so it does.

You can read the rest of the article here (the link expires in a week, and the article goes behind NJ's subscription barrier).