The Subprime Squeeze

The Wall Street Journal's James Haggerty wrote an article March 11, 2006 entitled "Millions Are Facing Monthly Squeeze On House Payments." In it, he provides some disturbing data regarding the subprime lending industry, including a graph showing subprime lending originations increasing from $150 billion in 2000 to $650 billion in 2005. Haggerty writes:

... about one million households eventually will default and lose their homes to foreclosure. That would cause about $110 billion of losses for lenders, he says.

Lenders and the economy as a whole could easily cope with such losses, Dr. Cagan says, though it would be devastating for some families and painful for some investors who bought securities backed by the riskiest loans. "It won't happen all at once," Dr. Cagan says. "It will be spread out over several years."

Lenders can "easily" cope with $110 billion in losses!?!

Seems to me that there is something fundamentally wrong with a system where $110 billion is a small cost of doing business on the backs of families who will lose their homes and investors who will no doubt lose their retirement nest-eggs used to buy these securities because the interest rate for real saving was rediculously low.