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Subprime time

Q: We’ve been seeing the word “subprime” a lot lately because of the mortgage and banking crisis. Can you tell me anything about it?

A: It’s interesting that you should ask. The Oxford English Dictionary added a draft entry last month on this very subject.

Although the adjective “subprime” has been in the news lately, as you point out, it’s been around in one sense or another for the good part of a century, according to the OED.

The word, which initially meant inferior or below the highest quality, appeared in a 1920 Federal Trade Commission report about the pricing of products that “arrived at market in subprime condition.”

It wasn’t used in a banking sense until the mid-1970s. At first, “subprime” was a positive term that referred to a low lending rate (one below the prime rate) offered to the most desirable borrowers.

In 1976, for example, an article in the Times of London reported a rise in “the volume of big loans granted at sub-prime rate levels” as US banks competed for “the most credit-worthy clients.”

By the 1990s, though, the adjective was being used negatively to refer to a high interest rate for borrowers with poor credit histories. Here’s a 1998 example from Time magazine: “As a so-called subprime lender, Green Tree makes high-interest loans to people with damaged credit.”

Similarly, “subprime” has been a noun since the mid-1970s, at first referring to a low-interest loan for a desirable borrower, and later to a high-interest loan for a questionable borrower.

The most recent published reference in the OED, from the October, 2007, issue of Vanity Fair, uses the term for high-interest debt of dubious value: “Smart investors began wondering how many other institutions held worthless subprime, too.”

And those smart investors are still wondering, no doubt.

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