Booms and Busts: the Case of Subprime Mortgages

Booms & busts have played a prominent role in Amer. economic history. In the 19th cent., the U.S. benefited from the canal boom, the railroad boom, the minerals boom, & a financial boom. The 20th cent. brought another financial boom, a postwar boom, & a dot-com boom. Each of these cases featured initial discoveries or breakthroughs, widespread adoption, widespread investment, & then a collapse & many investors lost a lot of money. When the dust cleared, there was financial carnage & many investors learned to be more careful the next time. This article describes why the subprime lending market, despite its problems, is a promising development that has permitted low-income & minority borrowers to participate in credit markets.