Promoting Future Subprime Defaults

From Bloomberg.com (HT Mish): "U.S. lawmakers will have to consider providing aid to about 2.2 million subprime mortgage borrowers who are at risk of defaulting and losing their homes, Senate Banking Committee Chairman Christopher Dodd said today."

Such aid would enormously help the businesses who have made subprime loans. According to one rumor investment bank Goldman Sachs has lost a lot of money on such loans. The current Treasury Secretary Henry Paulson was the former CEO of Goldman Sachs so it will be interesting to see if he supports a bailout.

If the government does bailout subprime borrowers and lenders, banks will expect the government to offer future bailouts if another subprime crisis arises. This expectation will increase banks' future willingness to make risky subprime loans and so increase the likelihood of another mass subprime loan default.