The Sub-Prime Mortgage Meltdown Continues

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When housing prices were going up, lenders were approving low interest loans to borrowers with questionable credit. The interest rates were "adjustable"--scheduled to go up, but before higher rates kicked in, homeowners could sell at a profit or re-finance their loans to get better deals.  Banks and investment companies packaged the sub-prime loans and issued hundreds of billions of dollars worth of bonds. Now, the head of Merrill-Lynch is among those losing their jobs as Wall Street pays the price for over-investing in sub-prime mortgages. America's biggest home lender is helping borrowers to restructure their loans to avoid foreclosure, but home prices are still going down. The sub-prime debacle may cost $400 billion, twice as much as the savings and loan crisis of the early 90's, and two million people may lose their homes. Will there be a recession? Should the government step in or let borrowers and investors live with the consequences of risky decisions?




Warren Olney