As world shares continue to fall on credit fears, more and more investors are suddenly starting to learn more about the sub-prime lending sector. Sub-prime lending is the provision of loans to people who cannot prove their income or who have poor credit histories
The BBC Business website, the Financial Times and Wikipedia have some background information on the sub-prime sector, but not all parts of the media have reacted so calmly. CNBC pundit Jim Cramer recently lost his composure when talking about the current market uncertainties and he tried to explain his position to satirist Stephen Colbert.
The opinions of some rather more august commentators are available from the EconPapers site where you can see what academic economists have written about the topic of subprime borrowing and the blogosphere is awash with commentary from academics, which you can track via the Economics Roundtable.
While the psychology of economic decisions may even have an impact on the sub-prime market as pointed out on the Boing Boing blog:
that long-term decision-making takes place in a different part of the brain from short-term decisions – so when you offer someone a cheap two-year mortgage followed by 28 years of scorchingly high interest rates, the short-term side jumps in and overrides the sober long-term mind.
With the science behind this explored further on the Frontal Cortex blog.