The moral hazard of the subprime market for loans is essentially this: Sooner or later…the only people left to borrow money are those to whom no sound banker would lend a dime under ordinary circumstances. With that in mind, one of my professors from Grad School e-mailed me the following article in PDF form the other day, which I’ve since seen floating around the Econosphere. It is a NYT article discusses the moral hazard of Fannie/Freddie moving in to the subprime market, from September, 1999: In moving, even tentatively, into this new area of lending, Fannie Mae is taking on significantly more risk, which may not pose any difficulties during flush economic times. But the government subsidized corporation may run into trouble in an economic downturn, promting … Read entire article »