Many reporters in the media were critical of the high interest rates that many banks charged to lenders in the so-called sub-prime market. Using economic reasoning what was the likely justification for these high interest rates

What will be an ideal response?

The sub-prime market served borrowers who otherwise would not have been able to get credit because of their poor credit history or low income or combination of the two. In order for banks and mortgage companies to find it in their interest to serve these clients they charged a premium above and beyond what they would typically charge clients with better credit histories since there was a greater chance of their defaulting.