They Were Wrong

clipped from hnn.us Subprime mortgages are a problem but they are not the cause of the collapse. The collapse was caused by an OPEC generated precipitous rise in oil prices. Subprime mortgage buyers could no longer pay their mortgages because too much of their pay check had to go to pay for gasoline. Yes, I know, gas prices have since declined but not before Humpty Dumpty, the American consumer, was broken. All subprime loans did was to encourage poor people to join the national spending spree. Indeed, when Oil rich nations decided to squeeze the American consumer by not only raising oil prices but also by ending or lowering their investment in the American financial markets, they assumed that there were enough new consumers in Asia to replace the American ones. In other word, they assumed that the collapse of the US economy would not lead to the collapse of the global economy, most especially, the Asian one. They were wrong.