GO
Loading...

Economist: Congress Will Only Make Subprime Worse

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.

Symbol
Price
 
Change
%Change
HSBA
---

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."

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.

Contact Squawk on the Street

  • Carl Quintanilla is an Emmy-winning reporter and co-anchor of CNBC's "Squawk on the Street," broadcast live from the NYSE.

  • Simon Hobbs co-anchors the 10 a.m. hour of CNBC's "Squawk on the Street" live from the New York Stock Exchange.

  • Jim Cramer is host of CNBC's "Mad Money" and co-anchor of the 9 a.m. ET hour of CNBC's "Squawk on the Street."

  • “Squawk on the Street” Co-Anchor

  • Rick Santelli joined CNBC Business News as an on-air editor in 1999, reporting live from the floor of the Chicago Board of Trade.