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1、19.THESUBPRIMECHAINUntiltheearly1990s,thepracticeofextendingloanstopeoplewithpoorcredithistories,folksregularbanksdidn’twantanythingtodowith,wasknownas“hardmoneylending”or“B&Clending.”Inmanypoorandminorityneighborhoods,themainsourceofthistypeofcreditwasindividu
2、alpawnbrokers,whodemandedobjectsofvalueascollateralfortheloans,andloansharks,whoreliedonthethreatofviolencetoensurerepayment.Therewerealsomoreorganizedconsumerlendingcompanies,suchasBeneficialFinance,acompanyfoundedinElizabeth,NewJersey,in1914,whosesalesmenwent
3、doortodoorofferingloansforthepurchaseofhouseholdgoods,whichwererepaidinfixedinstallments.MostoftheloansissuedbyBeneficialanditsrivalsweresmallones:intheearly1960s,afewhundreddollarswasthetypicalamount.Thingsbegantochangewhentheconsumerlendersstartedtoissuesecon
4、dmortgages—thephrase“homeequityloan”hadn’tbeeninvented—topeoplewhoseprimarylenderswouldn’tgivethemanotherloan.Theyfoundplentyofhomeownerswillingtopayaninterestrateof5or6percentabovetheordinarymortgageratetogettheirhandsonanextra$10,000or$20,000.By1979,Beneficia
5、lhadissuedmorethan$4billioninsecondmortgages,anditwasmakingprofitsof$100millionayear.Mostbanksandthriftshadnothingtodowithhardlending,whichwasseenasdéclassé.Theheftyinterestratesthattheconsumerfinancecompanieslevied—ashighas15or20percent—andtheaggressivetactics
6、theyusedtodealwithtardydebtors,suchasemploying“repomen,”promptedmanycriticstoaccusethemofpredatorybehavior.“Wewerelepers,scumoftheearth,”aformerexecutiveatBeneficialtoldthefinancialjournalistsPaulMuoloandMathewPadilla.“That’showwewereviewed.”Evenifbankshadwante
7、dtoengageinhardlending,theycouldn’thavedoneso:stateusurylawsplacedlimitsontheinterestratestheywereallowedtocharge.Thebirthofthemodernsubprimeindustrycanbedatedtothe1980passageoftheDepositoryInstitutionsDeregulationandMonetaryControlAct,whichallowedbanksandthrif
8、tstochargeborrowerswhateverratestheywanted.TheAlternativeMortgageTransactionParityActof1982furtherloosenedrestrictionsonlenders,allowingthemtochargevariableinterestratesandd
