by Jonathan Bartley
Last month, the US Federal Reserve chairman Ben Bernanke held an unusual and urgent meeting with top economic
policy-makers, to discuss the fallout from the recent volatility in the financial markets.
On the agenda was the regulation of those who, some say, have recklessly leant money to vulnerable homeowners.
The turmoil in the financial markets which still continues and has been seen most recently in the run on the Northern Rock bank in the UK, began over fears surrounding sub-prime mortgages, made to those who find it hard to get credit. The loans are less than 'prime' because of the degree of risk. A potentially dangerous investment, they carry higher rates of interest to reward the lenders for their entrepreneurial daring.
Many would condemn as 'loan sharks', those who charge higher rates to the vulnerable. But the institutional usury of the sub-prime sector has become a virtue. Adam Smith's invisible hand lifts the poor onto the first rung of the housing ladder. It then gives a large pat on the back, or a golden handshake, to those who have taken the investment risks. Everyone appears to win.
But when higher rates of interest mean the poorest default on their loans, it seems, from the recent stock market plunges at least, we all have the potential to lose...