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Spectre of the Subprime Borrower—beyond a credit score perspective
Johnna Montgomerie
CRESC Working Paper Series. http://www.cresc.ac.uk/publications/spectre-of-the-subprime-borrower%E2%80%94beyond-a-credit-score-perspective; 2008. Working Paper No. 58.
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Abstract
The subprime borrower has achieved a celebrity status as of late. In this evolving tale of financial woe, the subprime borrower has delivered a fatal blow to the global financial markets. Two distinct personalities have emerged from this unfolding saga: the incredulous and financially illiterate subprime borrower pit against the greedy and often predatory lender. In retrospect lending to this group of low-income/ high-risk individuals is now considered indicative of the foot-loose tendencies of financial actors and complacent nature of the financial regulatory environment. Yet, the availability of credit to subprime borrowers was, not to long ago, heralded as a major achievement of newly liberalized financial markets. Risk calculation and balance sheet management techniques showed that markets, without the interference government, were able to democratize access to finance. Up until the summer of 2007, little attention had been paid to the subprime borrower and their experience of the ‘roaring 90s’ and past seven years of financialized expansion. The term ‘subprime’ refers to credit status that encompasses a wide range of socio-economic grouping. Using existing qualitative accounts of the causes of rising consumer debt, coupled with the limited quantitative data available on subprime borrowers, this article moves away from the linear (and coherent) account of credit as a transaction between borrower and lender. The attempt isto engage with the lived experience of these groups of the past seven years to understand the role that consumer credit plays in their everyday life. By drawing together the outcomes presented in existing literatures on labour market reform, rising education costs and declining state subsidies these trends are contextualized as factors contributing to the broader consumer credit boom. In particular, how these groups have lived on the frontier of receding state subsidies and advancing credit products.