The fact the regulations are lax enough to allow loans to people who can't afford them is the real cause of the problem. Untill this is delt with, the situation will not improve.
The fact that subprime loans make up such a large part of the loan market is a massive cause for concern. Here in Australia, Sub prime loans barely make up 0.1% of the overall loan market. This has ment bank and non bank lenders have had less loans failing than elsewhere (it has increased in the last couple of years, but 95% of loan still are going OK)
You don't have to stiffle the market, just make sure the market act with better control so things don't get as bad as they have. Sometimes letting a few of these companies fall will help remind others that if they play with fire, they too can crash and burn.
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