Subprime lending is neither an all-out blessing nor an unalloyed curse. While too much of it can cause a raft of troubles, that doesn't mean none of it should be done. The pertinent questions are how best to go about it, and wherein lies the optimum price (interest rate). Lots of smart people are wrestling with those subjects right now. While some bail out of the subprime market, others are buying in -- for example, the hedge fund Farallon Capital Management LLC in San Francisco, which has just advanced the subprime mortgage company Accredited Home Lenders Holding Co. a $200 million loan, and another hedge fund, Citadel Investment Group LLC, which bought 4.5 percent of Accredited.
Friday, March 23, 2007
Exploiting the Lumpen is Good Business
Bloomberg brings an article about the other side of the subprime mortgage crisis in America. The crisis that was about to cause a worldwide recession is fizzling out. Now I am starting to realize what the whole thing was about: it is about the eternal business of selling on credit to poor people, a business segment typically dominated in Argentina by Jewish and Turco small businessmen. Poor people knows that they are buying things at higher price than middle class people, and that they are paying usurious rates of interest, but they have no choice. The business derived from this segment is the second hand furniture and automobile business, and the reselling of repossessed houses. Here the resale of repossessed houses was becoming problematic, because of an expected slowing down of the market. In case of the cuentenik the bad loans were calculated in, and no cuentenik ever went bankrupt. It was a difficult business, not for gentlemen. It appears that some smart American financiers are realizing that exploiting poor people is, after all, one the best businesses around, and it will be around for ever, so instead of liquidating the business, they are buying in. Tomorrow someone will say that the panic was artificial and caused with the purpose of buying in cheaply into the business.