This is the Cato Daily Podcast for Friday, August 31st, 2007. I'm Caleb Brown.

Is the subprime mortgage mess threatening the rest of the economy?

And just who is to blame for

the collapse of that sliver of the mortgage market. U.S. Senator Barack Obama and

others would seek to blame unscrupulous mortgage lenders, mortgage brokers, and others who want to line their pockets

at the expense of misled borrowers.

Cato Institute Senior Fellow Alan Reynolds says the data would seem to contradict those kinds of

claims.

He adds that lenders don't make money, making loans that can't be repaid.

U.S. Senator and presidential candidate Barack Obama refers to the current subprime mortgage collapse as a cancer

that quote threatens to spread with devastating impact to housing and to our economy as a whole

unless we act to contain it. What do you think of that? Well, to some extent that's scaremongering.

And he's saying this at a time that new home sales were up in July by 2.8%.

A new home prices were up in July, 3.9%. Existing homes are a different matter, but that's not part of the economy.

That's just people trading homes. We're not building those. Housing is a little overbuilt. It's going to take a little time to work it down. Some

housing is overpriced and when that happens, like anything else, it's overpriced.

Price is going to have to come down. But the subprime mortgage is a fairly small part of the market. And

even at the worst kind of scenario we're talking about maybe 1% or less of total mortgages going into default. That's a problem if you're less of total mortgages going into default.

That's a problem if you're the lender or if you own securities that are backed by it,

but it's not a general problem.

It's a problem if you bought stock in a mortgage lender that's

in trouble, but I didn't own that stock, so I'm not terribly concerned about that.

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