Subprime loans: From a social boon to a historic bust

Sub-prime lending began as a mechanism to broaden consumer access to credit and afford the fruits of capitalism to a socio-economic class that had been previously excluded. The ethical considerations surrounding early sub-prime products were mostly altruistic and most Economists agreed that the social benefit out-weighed the stiffer terms applied to sub-prime products.

It is my personal belief that the confluence of automated credit decision making, the deregulation of banking, and the push of the consumer form inside the bank to outside the bank helped to dehumanize the borrower in the eyes of the institutions.  No longer was a borrower John A. Doe, but rather account #123456789 with a FICO score of 560.

As banks looked to broaden their profit channels the institutional leaders lost sight of the humans behind the loans they were pushing.  Where early sub-prime products allowed a family to buy their first car and have access to freedom of movement.  The later products turned many families into indentured servants to the banking system's profit machine.

Prime borrowers were no longer the most profitable source of revenue for the financial system.  They tended to be savvier and well versed in financial markets and less likely to accept marginal deals.  They rarely defaulted and produced little additional fee revenue for the financial system.  While valued for their deposits, it was the sub-prime borrower who represented the future of profit growth for the financial systems, not the historical customer base of prime borrowers.

As a result, sub-prime borrowers were targeted and systemically abused by an institution with an unfair advantage of knowledge, resources, and ever evolving set of rules.