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Economist: Congress Will Only Make Subprime Worse

Thursday, 22 Mar 2007 | 12:04 PM ET
MKM Partners
MKM Partners

Want a recipe for deeper subprime trouble? Add governmental interference, says Michael Darda. The chief economist at MKM Partners joined "Squawk on the Street" to address Thursday's Senate Banking Committee hearings on mortgage lending.

Despite the woes afflicting the high-risk end of the mortgage business, Darda told CNBC's Erin Burnett that he "wasn't nervous about subprime metastacizing" into the rest of the lending industry "until all the Congressional grandstanding" began.

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He took issue with committee chairman Sen. Christopher Dodd (D-Conn.), who blames regulators' "pattern of neglect" for the sudden rise in lender failures. Darden sees "shenanigans" on both sides of the table, with lenders taking on too much risk as well as debtor "dishonesty."

Subprime Center Stage
Subprime mortgage lenders are called to testify on Capitol Hill, and Diana Olick, CNBC real estate reporter; Michael Darda, MKM Partners chief economist; and CNBC's Mark Haines share their insight

He quoted classical economist Frederick Hayek, who said that the best "market therapy" is simply to let prices and quantities to adjust naturally. Darden said developments in the subprime subsector -- like New Century being delisted by the NYSE -- are actually a healthy signal that "the market is solving the problem with bankruptcies" and "business failures."

Lenders testifying before the committee include HSBC Finance, Countrywide Financial, WMC Mortgage (a subsidiary of CNBC parent General Electric) and Merrill Lynch's First Franklin unit.

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