Sub-Prime Crisis

Don't be fooled by the sub-prime mortgage crisis. It is real, but it is also hyped by the media and special interests on Wall Street.

There are Wall Street fatcats who made bushels of money on sub-prime mortgages, but now that the party is over, they want a government bail-out. That would be bad policy.

As part of the hype, we are told that money market funds (where middle-America keeps a lot of its savings) could be in jeopardy. Don't believe this. The money market funds hardly reaped the rewards (fat fees) of Wall Street and money-center banks like Citigroup, so there is no reason why the money market funds ought to be hurt. But they could be hurt if Wall Street wanted this outcome. That is because money market funds invest in "commercial paper", and Wall Street could probably "manage" the crisis by acting in ways that result in defaults for these short-term loans.

The reason Wall Street won't do that is because if they did, there would be a class-action lawsuit against Wall Street that would make the tobacco litigation look like small potatoes.