Construction Boom: Built-In Subprime Risk

This column was originally published on RealMoney on March 26 at 9:17 a.m. EDT. It's being republished as a bonus for TheStreet.com readers. For more information about subscribing to RealMoney, please click here.

The amount of disinformation about subprime loans is simply out of control. Without compromising my view of a Fed rate cut in May, which was buttressed by everything from FedEx's(FDX Quote) weak earnings to Darden's(DRI Quote) poor traffic in last week's releases, you have to weigh the real consequences of subprime with the data we have out there now.

First, we need to analyze how much of subprime is fraudulent, and how much of it is from flippers vs. undocumented immigrants.

I say this because if you are going to put no money down on a house, why in heck should you keep the house if it doesn't go up in value unless you bought only one house and you can refinance? I think the number of foreclosures in the latter cohort is smaller than you think. The former cohort, though, carries a high walkaway factor. And I think the speculators were big. The so-called "tightening" of credit standards is simply a return to where we were in 2004. ...