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1
Dymski, Gary. "Racial Exclusion and the Political Economy of the Subprime Crisis." Historical Materialism 17, no. 2 (2009): 149–79. http://dx.doi.org/10.1163/156920609x436162.
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AbstractThis paper develops a political economic explanation of the 2007–9 US subprime crisis which focuses on one of its central causes: the transformation of racial exclusion in US mortgage-markets. Until the early 1990s, racial minorities were systematically excluded from mortgage-finance due to bank-redlining and discrimination. But, then, racial exclusion in credit-markets was transformed: racial minorities were increasingly given access to housing-credit under terms far more adverse than were offered to non-minority borrowers. This paper shows that the emergence of the subprime loan is linked, in turn, to the strategic transformation of banking in the 1980s, and to the unique global circumstances of the US macro-economy. Thus, subprime lending emerged from a combination of the long US history of racial exclusion in credit-markets, the crisis of US banking, and the position of the US within the global economy. From the viewpoint of the capitalist accumulation-process, these loans increased the depth of the financial expropriation of the working class by financial capital. The crisis in subprime lending then emerged when subprime loans with exploitative terms became more widespread and were made increasingly on an under-collateralised basis – that is, when housing-loans became not just extortionary but speculative.
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Aalbers, Manuel B. "Why the Community Reinvestment Act Cannot be Blamed for the Subprime Crisis." City & Community 8, no. 3 (September 2009): 346–50. http://dx.doi.org/10.1111/j.1540-6040.2009.01292_2.x.
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It has become common practice—and in particular, but not exclusively, in conservative media—to blame the Community Reinvestment Act (CRA) of 1977 for the U.S. subprime mortgage and foreclosure crisis that triggered the global financial crisis. It is argued that the CRA forced lenders to give mortgage loans to high–risk borrowers. This is nonsense for at least five reasons.
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Killick, Evan. "The Debts that Bind Us: A Comparison of Amazonian Debt-Peonage and U.S. Mortgage Practices." Comparative Studies in Society and History 53, no. 2 (March 29, 2011): 344–70. http://dx.doi.org/10.1017/s0010417511000089.
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Three years after the global financial crisis started academic and popular publications assessing its origins, consequences and wider implications are starting to emerge. The origins of the crisis are generally explained as stemming from the rapid increase in subprime mortgage lending in the United States and the credit default swaps banks and other financial institutions traded amongst themselves based on these loans. As homeowners found it increasingly difficult to make their repayments and housing prices in the United States started to drop, a downward spiral ensued. In this cycle ever-growing numbers of homeowners defaulted on their mortgages, unable to meet interest payments or to re-mortgage, and banks foreclosed on the houses even as their own assets and investments were exposed to the losses stemming from defaulted mortgages. With the foreclosures devaluing house prices further and the exposure of banks making them less willing and able to refinance mortgages, the situation quickly spiraled downwards. The complex global trade in credit default swaps and other derivatives meant that the problems were amplified and spread beyond the United States until ultimately many national governments decided to intervene with financial assistance mainly aimed at the financial institutions.
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Gierczyńska, Kornelia, and Andrzej Wojciechowski. "The consequences of subprime crisis for the Polish economy." Equilibrium 2, no. 1 (June 30, 2009): 9–16. http://dx.doi.org/10.12775/equil.2009.001.
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In march 2008 the situation on the mortgage market was called a crisis. Many companies collapsed, including New Century Financial Corporation – the biggest credit company in the United States. After few months this virus infected other countries including Poland. The purpose of this article is to show the background of the subprime mortgage crisis and the possible outcomes for the Polish economy. The first part is trying to find out what are the causes and course of this financial breakdown. That part is mainly focused on subprime loans and its significance to this crisis. After that paper contain information about the main channel of infestation, the securitization of the debt by the banks and selling the securities to the investors all over the world. The next chapter contains the data about the impact that crisis have on polish economy, including GDP growth rate and what would likely happen on housing market and stock exchange. Polish banking and credit system is sounder then American one and there is no risk of insolvency but still we are feeling the consequences of the financial crash. In the end author concludes that in the globalized world financial markets are linked and it is impossible to maintain unaffected by crisis that happened on the other side of the globe.
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Pezzuto, Ivo. "Miraculous financial engineering or toxic finance? The genesis of the U.S. subprime mortgage loans crisis and its consequences on the global financial markets and real economy." Journal of Governance and Regulation 1, no. 3 (2012): 114–25. http://dx.doi.org/10.22495/jgr_v1_i3_c1_p5.
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In the fall of 2008, the U.S. subprime mortgage loans defaults have turned into Wall Street’s biggest crisis since the Great Depression. As hundreds of billions in mortgage-related investments went bad, banks became suspicious of one another’s potential undisclosed credit losses and preferred to reduce their exposure in the interbank markets, thus causing interbank interest rates and credit default swaps increases, a liquidity shortage problem and a worsened credit crunch condition to consumers and businesses. Massive cash injections into money markets and interest rates reductions have been assured by central banks in an attempt to shore up banks and to restore confidence within the financial system. Even Governments have promoted bail-out deal agreements, protections from bankruptcies, recapitalizations and bank nationalizations in order to rescue banks from disastrous bankruptcies. The credit crisis originated in the previous years when the Federal Reserve sharply lowered interest rates (Fed Funds at 1%) to limit the economic damage of the stock market decline due to the 2000 dot.com companies’ crisis. Lower interest rates made mortgage payments cheaper, and the demand for homes began to rise, sending prices up. In addition, millions of homeowners took advantage of the rate drop to refinance their existing mortgages. As the industry ramped up, the quality of the mortgages went down due to poor credit origination and credit risk assessment. Delinquency and default rates began to rise in 2006 as interest rates rose (Fed Funds at 5,25%) and poor households across the US struggled to pay off their mortgages. Many of them went bankrupt and lost their homes but the pace of lending did not slow. Banks have transformed much of the high-risk mortgage debt (securitizations) into mortgage-backed securities (MBS) and collateralised debt obligations (CDO), and have sold these assets on the financial markets to investment firms and insurance companies around the world, transferring to these investors the rights to the mortgage payments and the related credit risk. With the collapse of the first banks and hedge funds in 2007 the rising number of foreclosures helped speed the fall of housing prices, and the number of prime mortgages in default began to increase. As many CDO products were held on a “mark to market” basis, the paralysis in the credit markets and the collapse of liquidity in these products let to the dramatic write-downs in 2007. When stock markets in the United States, Europe and Asia continued to plunge, leading central banks took the drastic step of a coordinated cut in interest rates and Governments coordinated actions that included taking equity stakes in major banks. This paper written by the Author (on October 7th, 2008) at the rise of these dramatic events, aims to demonstrate, through solid and fact-based assumptions, that this dramatic global financial crisis could have been addressed and managed earlier and better by many of the stakeholders involved in the subprime mortgage lending process such as, banks’ and investment funds management, rating agencies, banking and financial markets supervisory authorities. It also unfortunately demonstrates the corporate social responsibility failure and the moral hazard of many key players involved in this crisis, since a lot of them probably knew quite well what was happening but have preferred not to do anything or to do little and late in order to change the dramatic course of the events.
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Çelik, İsmail Erkan. "The Relationship Between Accounting Practices and Effects of Financial Crisis in Turkey: A Case Study on an Oil Company." EMAJ: Emerging Markets Journal 6, no. 1 (February 2, 2016): 47–58. http://dx.doi.org/10.5195/emaj.2016.96.
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Many reasons lie at the base of all financial crises from the past to the present. If we take into consideration the 2008 subprime mortgage crisis, the only reason cannot be mortgage loans. But the mortgage issue continued to advance and created several other problems. Definitely, the source of mortgage loans problem also had many roots. One of the reasons was the lack of correct use of accounting principles and auditing. This is a strong proof and indicator that, there are many accounting based reasons behind the occurrence of the financial crises. Many examples can be given showing moving away from the basic principles of accounting rules and the general accounting concepts. Moreover, institutions being not fully independent, running creative accounting practices, having problems with fair valuation and transparency issues, presenting unreal financial reports, and sharing misleading audit reports are all related to financial crises.Furthermore, specific businesses and people abuse accounting rules, standards and related legislation for the sake of their own interests. Accounting and finance history has shown us that, even audit institutions, credit institutions and rating agencies are getting unfair advantages and generating unethical cash by making intentional accounting and finance errors, which is actually categorized as fraud.The aim of this study is to analyze financial crises and to determine if accounting practices have any relationship with financial crises. The research investigated an oil company’s financial and operational indicators before and after the 2008 financial crises with related tables and figures. Also, an interview was run with the company’s accounting officer. Based on the statements of firm’s accounting officer, correct accounting practices defended firm from several negative effects of the 2008 financial crisis.
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Li, Haoyang. "The Influence of Covid-19 on Subprime in the U.S." E3S Web of Conferences 235 (2021): 01063. http://dx.doi.org/10.1051/e3sconf/202123501063.
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Subprime lending in the United States was a major concern after the 2008 financial crisis. While Covid-19 is sweeping the world, how will the US government and financial institutions deal with the potential crisis of subprime mortgage will be discussed in this study. Financial market institutions and the US government should both change their strategies to deal with the crisis. In addition to controlling the spread of the epidemic, the US government should temporarily lower the minimum wage and provide a series of quantitative financial subsidies. Financial institutions should also update loan data and use better monitoring and regulation to reduce subprime risk to cope with this potential crisis.
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Pezzuto, Ivo. "Predictable and avoidable: What’s next?" Journal of Governance and Regulation 3, no. 3 (2014): 134–50. http://dx.doi.org/10.22495/jgr_v3_i3_c1_p7.
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The author of this paper (Dr. Ivo Pezzuto) has been one of the first authors to write back in 2008 about the alleged "subprime mortgage loans fraud" which has triggered the 2008 financial crisis, in combination with multiple other complex, highly interrelated, and concurrent factors. The author has been also one of the first authors to report in that same working paper of 2008 (available on SSRN and titled "Miraculous Financial Engineering or Toxic Finance? The Genesis of the U.S. Subprime Mortgage Loans Crisis and its Consequences on the Global Financial Markets and Real Economy") the high probability of a Eurozone debt crisis, due to a number of unsolved structural macroeconomic problems, the lack of a single crisis resolution scheme, current account imbalances, and in some countries, housing bubbles/high private debt. In the book published in 2013 and titled "Predictable and Avoidable: Repairing Economic Dislocation and Preventing the Recurrence of Crisis", Dr. Ivo Pezzuto has exposed the root causes of the financial crisis in order to enables readers to understand that the crisis we have seen was predictable and should have been avoidable, and that a recurrence can be avoided, if lessons are learned and the right action taken. Almost one year after the publication of the book "Predictable and Avoidable: Repairing Economic Dislocation and Preventing the Recurrence of Crisis", the author has decided to write this working paper to explore what happened in the meantime to the financial markets and to the financial regulation implementation. Most of all, the author with this working paper aims to provide an updated analysis as strategist and scenario analyst on the topics addressed in the book "Predictable and Avoidable" based on a forward-looking perspective and on potential "tail risk" scenarios. The topics reported in this paper relate to financial crises; Government policy; financial regulation; corporate governance; credit risk management; financial risk management; economic policy; Euro Zone debt crisis; the "Great Recession"; business ethics; sociology, finance and financial markets. This paper aims to contribute to the debate about the change needed in the banking and finance industries and to supervisory frameworks, in order to enhance regulatory mechanisms and to improve global financial stability and sustainability.
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Schiltz, Elizabeth R. "The Paradox of the Global and the Local in the Financial Crisis of 2008: Applying the Lessons of Caritas in Veritate to the Regulation of Consumer Credit in the United States and the European Union." Journal of Law and Religion 26, no. 1 (2010): 173–212. http://dx.doi.org/10.1017/s0748081400000941.
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In his recent encyclical Caritas in Veritate, Pope Benedict XVI grapples with one of the most vexing paradoxes concerning the current global economic crisis. There is no question that it is a global financial crisis. The collapse of the subprime mortgage loan market in the U.S. in 2007 prefigured similar collapses of real estate bubbles in other parts of the world. The collapse of these real estate bubbles exposed the degree of interconnectedness among financial institutions across the globe created by the worldwide market for the derivate investment products created on the backs of the underlying real estate loans—the mortgage-backed securities in all their complex manifestations, and the credit default swaps that were essentially insurance policies on the risks of default of these securities. Various configurations of international coordinating bodies have called for global responses to the crisis. At its root, however, the current crisis is in a very important sense fundamentally a uniquely local phenomenon. It is the result of individual consumer transactions that are about as inherently local as a commercial transaction can ever get—loans to specific individual consumers tied to specific unique, unmovable pieces of residential real estate. Every single loan packaged into the bundles of investment opportunities that became “toxic assets” held by large institutional investors originated with a contractual relationship between an individual borrower and a single lender. In addition to the global macroeconomic consequences of the collapse of this market, every one of these loans that goes into default has personal consequences for the individual borrower whose home is the collateral for that loan.
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Thomas, Jason Earl. "Lessons Learned in Management, Marketing, Sales, and Finance Incentive Practices a Decade after the Subprime Mortgage Crisis." International Journal of Business and Management 12, no. 3 (February 21, 2017): 19. http://dx.doi.org/10.5539/ijbm.v12n3p19.
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The subprime mortgage crisis was the most devastating financial crisis since the Great Depression. The steady rise of housing purchases and seemingly limitless increase in home values drew many investors to the United States real estate market. The business growth in this sector was so compelling that financial firms created new secondary markets that were perceived as diversifying risk, which in turn prompted lenders to create innovative funding vehicles and loose and fast loan qualification processes. The federal government was ill prepared to deal with this shift in the financial world to market-based demand, and the results were disastrous. Lenders embraced predatory lending practices, borrowers with bad credit overextended themselves beyond their means, and foreclosures occurred at startling rates as home values plummeted, resulting in a world-wide economic depression. Ten years later, we reflect on the events that led up to and caused the subprime mortgage crisis for lessons learned to improve management, marketing, and finance incentive practices.
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Rundo and Luigi Di Stallo. "A Review of the Main Issues on the Loan Contracts: Asymmetric Information, Poor Transparency, and Hidden Costs." Economies 7, no. 3 (September 4, 2019): 91. http://dx.doi.org/10.3390/economies7030091.
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The well-known subprime mortgage crisis, which began to manifest in early 2007, since when the effects of the speculative bubble begin to become evident from the increase in default rates in residential mortgages, has triggered a global crisis that has pushed various legislations over time to implement a series of financial reforms with the specific objective of avoiding that similar phenomena could be repeated over time. The ability to repay a loan is strongly influenced by the amortization algorithm that the bank has decided to adopt. This appears even more evident in variable interest rate loans since, as the economic conditions of the indexation parameter change, the definition of the loan balance and the related portion of interest will be decisive in relation to the borrower’s ability to repay the loaned capital. A study of the main amortization algorithms and the related descriptions in the bank contracts will allow us to show which are the main issues due to an information asymmetry that, unfortunately, characterizes this type of contract and would seem to be one of the main reasons that lie at the root of the aforementioned crisis of subprime mortgages in the USA. Moreover, the authors will provide a clear analysis of the financial indicators usually reported in loan contracts and how often these indications are insufficient to characterize the actual cost of the loan. Furthermore, by highlighting the discretionary choice that banks often obtain following the contractual loan schemes commonly offered to retail and corporate clients, we will show how this often translates into greater cost to the borrower. Finally, we will propose two possible solutions to the problems highlighted, thus allowing us to reduce this information gap, which unfortunately translates into greater costs for customers with the associated increase in default rates, or the so-called nonperforming loan (NPLs) contracts. Therefore, the objective of this contribution is to show which are the most critical aspects of the bank contracts related to contractual transparency and to the presence or otherwise of hidden costs, i.e., not expressly shown in the contract. Specifically, we refer to the loan contracts issued in Italy both with reference to the local banking legislation and to the European one to which Italy must often refer.
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Hwang, Sungjoo, Moonseo Park, Hyun-Soo Lee, Yousang Yoon, and Bo-Sik Son. "KOREA N REAL ESTATE MARKET AND BOOSTING POLICIES: FOCUSING ON MORTGAGE LOANS." International Journal of Strategic Property Management 14, no. 2 (June 30, 2010): 157–72. http://dx.doi.org/10.3846/ijspm.2010.12.
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The Korean real estate market is currently slowing down due to the global economic crisis, which resulted from subprime mortgage crisis in the United States. In response, the Korean government has adopted various policies in an attempt to deregulate real estate speculation. For example, the Loan to value ratio (LTV) has been increased in order to stimulate housing supply, demand, and housing transactions. However, these policies could potentially result in a mortgage crisis due to an increase in over‐amplified and high‐risk derivatives in Korea's secondary mortgage market. Consequently, the housing market could fall into such deep confusion that it will be even more difficult to perform empirically based housing market forecasting. Therefore, a comprehensive and systematic method is required to analyze the real estate financial market and the causal relationships between market influence factors. With an integrated perspective and an application of a system dynamics methodology, this paper proposes Korean Real Estate and Mortgage Market dynamics models based on the fundamental principles and causal loops of housing markets, which are determined by the economic activities of consumers, financial agencies, and real estate financing investors. The potential effects of the Korean government's deregulation policies are also considered by focusing on the main factor of these policies: the mortgage loan. Santruka Korejos nekilnojamojo turto rinka šiuo metu išgyvena nuosmuki del pasaulines ekonomines krizes, kuri kilo del JAV būsto paskolu rinkos krizes. Reaguodama i tai, Korejos Vyriausybe emesi ivairiu politikos priemoniu, siekdama užkirsti kelia nekilnojamojo turto spekuliacijai. Pavyzdžiui, buvo padidintas paskolos ir vertes santykis (angl. LTV), siekiant skatinti būsto pasiūla, paklausa ir būsto sandorius. Tačiau šios politicos priemones galetu lemti būsto krize del per daug išplestos ir dideles rizikos išvestinemis priemonemis, didinant Korejos antrinio būsto rinka. Tačiau būsto rinka gali atsidurti tokioje painioje situacijoje, kad bus dar sunkiau atlikti empiriškai pagrista būsto rinkos prognoze. Todel reikalingas išsamus ir sisteminis metodas, padedantis analizuoti finansine nekilnojamojo turto rinka ir priežastini ryši tarp rinka veikiančiu veiksniu. Be integruotos perspektyvos ir dinamiško sistemingu metodu taikymo, šiame straipsnyje siūlomi Korejos nekilnojamojo turto ir paskolu rinkos dinamikos modeliai, pagristi pagrindiniais principais ir pagrindinemis nesekmemis būsto rinkose, kurios nustatomos pagal ekonomine vartotoju veikla, finansuojančias institucijas, ir nekilnojamaji turta finansuojančiais investuotojais. Galimas Korejos Vyriausybes pertvarkymo politicos rezultatas - sutelkti demesi i svarbiausia šiu politikos krypčiu rodikli - būsto paskolas.
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Antoniades, Adonis. "Liquidity Risk and the Credit Crunch of 2007–2008: Evidence from Micro-Level Data on Mortgage Loan Applications." Journal of Financial and Quantitative Analysis 51, no. 6 (December 2016): 1795–822. http://dx.doi.org/10.1017/s0022109016000740.
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Recent empirical studies have shown that during the financial crisis of 2007–2008, banks that were more heavily exposed to liquidity risk contracted their supply of credit more sharply. I contribute to the identification of this effect by relying on the use of micro-level data on U.S. mortgage loan applications, which allows me to identify liquidity risk as an important determinant of the contraction of credit in the mortgage market but as separate from the precipitous fall in credit demand, disruptions in the securitization and subprime markets, shifts in asset risk, and changing risk aversion among loan officers.
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Hariri bin Bakri, Mohammed, Nurayati Dabas, Shafinar Ismail, and Baharom Abdul Hamid. "Does Securitization for Government Staff Personal Loan Perform?" International Journal of Engineering & Technology 7, no. 3.21 (August 8, 2018): 267. http://dx.doi.org/10.14419/ijet.v7i3.21.17171.
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Malaysian firms have been reported to involve in Asset-Backed Securities since 1986s where Cagamas is a pioneer. The objective of this study to determine the primary market spread and analyze on firm financial performance. The methodology for this paper using regression analysis for the study period 2007-2012. They are three determinants that contribute and statistically significant for this research paper. The measurement of financial performance does not have any impact during subprime mortgage crisis. The firm results shows increasing profitability, reducing debt, stronger company value and shareholders earning better dividend.
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Ashcraft, Adam, Paul Goldsmith-Pinkham, Peter Hull, and James Vickery. "Credit Ratings and Security Prices in the Subprime MBS Market." American Economic Review 101, no. 3 (May 1, 2011): 115–19. http://dx.doi.org/10.1257/aer.101.3.115.
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We present and discuss preliminary evidence suggesting that credit ratings significantly influenced prices for subprime mortgage-backed securities issued in the period leading up to the recent financial crisis. Ratings are closely correlated with prices even controlling for a rich set of security- and loan-level controls. This incremental variation in ratings has much less predictive power for security defaults, however, based on findings to date from our ongoing research, suggesting prices were excessively sensitive to ratings relative to their informational content.
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Fouche, C. H., J. Mukuddem-Petersen, M. A. Petersen, and M. C. Senosi. "Bank Valuation and Its Connections with the Subprime Mortgage Crisis and Basel II Capital Accord." Discrete Dynamics in Nature and Society 2008 (2008): 1–44. http://dx.doi.org/10.1155/2008/740845.
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The ongoing subprime mortgage crisis (SMC) and implementation of Basel II Capital Accord regulation have resulted in issues related to bank valuation and profitability becoming more topical. Profit is a major indicator of financial crises for households, companies, and financial institutions. An SMC-related example of this is the U.S. bank, Wachovia Corp., which reported major losses in the first quarter of 2007 and eventually was bought by Citigroup in September 2008. A first objective of this paper is to value a bank subject to Basel II based on premiums for market, credit, and operational risk. In this case, we investigate the discrete-time dynamics of banking assets, capital, and profit when loan losses and macroeconomic conditions are explicitly considered. These models enable us to formulate an optimal bank valuation problem subject to cash flow, loan demand, financing, and balance sheet constraints. The main achievement of this paper is bank value maximization via optimal choices of loan rate and supply which leads to maximal deposits, provisions for deposit withdrawals, and bank profitability. The aforementioned loan rates and capital provide connections with the SMC. Finally, OECD data confirms that loan loss provisioning and profitability are strongly correlated with the business cycle.
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Memon, Muhammad Salih, Munawwar Ali Kartio, Prof Dr Abida Taherani, and Prof Ghulam Hussain Khaskhelly. "Performance of Commercai Banks of Pakistan in the backdrop of Global Financial Crisis." INTERNATIONAL JOURNAL OF MANAGEMENT & INFORMATION TECHNOLOGY 11, no. 1 (March 30, 2016): 2624–33. http://dx.doi.org/10.24297/ijmit.v11i1.4933.
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This research paper highlights the efficiency & performance of commercial banks of Pakistan after the emergence of global financial crisis. The crisis were basically started in United States after the collapse of subprime mortgage market but engulfed the entire globe though the level of severity was different from country to country. Paper also discusses the challenges and obstacles hindered the smooth performance of banking sector in Pakistan. Five big banks of the country were selected to evaluate their efficiency in terms of profits, liquidity and solvency.For this purpose various financial ratios were used to avoid size disparity of banks. The banks play an important role of financial intermediation; channelize savings of public to investors hence basic key performance indicators for this research were deposits, profit, advances and capital.An attempt has been made to examine the growth and sustainability of banks through their performance from 2007 to 2012, before and after crisis.The main findings are (I) the profitability was affected adversely (II) Non Performing Loans were increasedsignificantly after tight control and management for several years.(III) It was explored that costly deposits were mobilized to maintain the book size and restore the confidence of depositors and all stake holders. (IV)The stability of the system remained unquestionable due to maintenance of Capital Adequacy Ratio well above the targeted ratio of 8 % in terms of Basel accord.
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Santoso, Yohanes William. "Penyebab Krisis Finansial Global tahun 2008: Kegagalan Financial Development dalam Mendorong Pertumbuhan dan Stabilitas Ekonomi." Jurnal Hubungan Internasional 11, no. 1 (November 1, 2018): 155. http://dx.doi.org/10.20473/jhi.v11i1.5853.
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The Global Financial Crisis has raised questions for economists on the causes of the issue and how to prevent similar case in the future. One of the causes of the crisis was a large and rapid increase of credit accumulation in the United States (US) on the period of 2000 to 2007. While according to the theory of Financial Development, credit is one of the indicator that shows the ongoing national financial system. Credit includes the access get credit and the ability of financial institution to lend credit. Both can be seen in the United States, proved by the ease of access to home loans and increasing amount of subprime mortgages. In accordance with the theory of financial development, the US economy should had experienced growth and stability. However, the rapid increase of credit accumulation in US has led to instability and crisis. The anomaly proves the failure of Financial Development and encourage the International Monetary Fund (IMF) to review the theory and prove its relevance in explaining economic growth and stability.
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Kouretas, Georgios, and Prodromos Vlamis. "The Greek crisis: Causes and implications." Panoeconomicus 57, no. 4 (2010): 391–404. http://dx.doi.org/10.2298/pan1004391k.
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This paper presents and critically discusses the origins and causes of the Greek fiscal crisis and its implications for the euro currency as well as the SEE economies. In the aftermath of the 2007-2009 financial crisis the enormous increase in sovereign debt has emerged as an important negative outcome, since public debt was dramatically increased in an effort by the US and the European governments to reduce the accumulated growth of private debt in the years preceding the recent financial turmoil. Although Greece is the country member of the eurozone that has been in the middle of this ongoing debt crisis, since November 2009 when it was made clear that its budget deficit and mainly its public debt were not sustainable, Greece?s fiscal crisis is not directly linked to the 2007 US subprime mortgage loan market crisis. As a result of this negative downturn the Greek government happily accepted a rescue plan of 110 billion euros designed and financed by the European Union and the IMF. A lengthy austerity programme and a fiscal consolidation plan have been put forward and are to be implemented in the next three years.
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Davidson, Paul. "Is the current financial distress caused by the subprime mortgage crisis a Minsky moment? or is it the result of attempting to securitize illiquid noncommercial mortgage loans?" Journal of Post Keynesian Economics 30, no. 4 (July 1, 2008): 669–76. http://dx.doi.org/10.2753/pke0160-3477300409.
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Lim, Charvin, and Siwi Nugraheni. "Loan-to-Value Ratio and Housing Price Cycle: Empirical Evidence From Indonesia." Jurnal Ekonomi Pembangunan: Kajian Masalah Ekonomi dan Pembangunan 18, no. 2 (December 20, 2017): 225. http://dx.doi.org/10.23917/jep.v18i2.4846.
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The subprime mortgage crisis in 2007-2009 which led to a global recession has highlighted the importance of regulating credit for housing market. The urgency arises not only to manage non-performing ratio, but further to manage price in the housing market which is a potent source of financial imbalance. Loan-to-value (LTV) regulation is imposed in order to dampen the housing price cycle, preventing the occurrence of bubble issue. This study tries to capture the influence of LTV implementation on housing price and assesses its effectiveness in the national scope. Error correction model is used to portray the short and long-term dynamics of housing cycle with regard to policy, macroeconomic, and financial variables. We concluded that LTV is an effective policy to dampen the price cycle in the long run, but not in the short run. In the short run, housing price is closely determined by the macroeconomic factors. Furthermore, we found that the implementation of LTV has made housing price to become more persistent, suggesting a change in the market expectation structure and the behavior of housing price cycle.
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Kundid Novokmet, Ana. "Troubles with the Chf Loans in Croatia: The Story of a Case Still Waiting to Be Closed." Journal of Risk and Financial Management 14, no. 2 (February 9, 2021): 75. http://dx.doi.org/10.3390/jrfm14020075.
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In numerous Central and Eastern European (CEE) countries, the global financial crisis as well as the unpegging of the foreign exchange rate of the Swiss franc (CHF) against the euro amplified the repayment troubles of households with the outstanding CHF-linked debt. In Croatia, the CHF loans were approved mainly as mortgages to unprotected and subprime household borrowers without sufficient credit capacity for long-term euro-linked loans, which also contained a possibility of an incremental interest rate change, i.e., the so-called administrative interest rate. This article aims to disclose the reasons behind the credit boom of these loans, the unsustainable CHF debt hardship that the household sector consequently faced, and how it was/could have been resolved, with the Croatian banking sector at the center of the research. Although the CHF case of Croatia has some specificities concerning the prudential regulation and government-sponsored loan conversion, the findings about the supply and demand determinants of the CHF credit boom, as well as a critical assessment of the Croatian government and central bank interventions, might be useful for timely noticing universal threats from the exotic currency-linked loans for the systemic risk and financial stability, and for minimizing the negative externalities from probable debt relief measures. Based on the descriptive and univariate statistics conducted on Bloomberg and the Croatian National Bank (CNB) data, it was found that interest rate differentials and carry trading behavior were the main reasons for the rapid CHF credit growth in Croatia. Nevertheless, according to the financial experts’ opinions obtained via a questionnaire survey, and the court verdicts reached since, the financial consumer protection when contracting these loans was severely violated, which implies that the central bank must enhance its consumer protection role. By adopting a single-country and holistic approach, this is the first paper that deals with the socioeconomic dynamic of the CHF credit default issues in Croatia, which might be interesting as a case study or for making comparison with other CEE countries that have been coping with negative consequences of Swiss francization.
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Yale, Gordon, Hugh Grove, and Maclyn Clouse. "Risk management lessons learned: countrywide report." Corporate Ownership and Control 11, no. 1 (2013): 33–46. http://dx.doi.org/10.22495/cocv11i1conf1p4.
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International and U.S. banks should benefit from studying Countrywide Financial Corporation’s business practices leading up to the 2008 financial crisis in order to develop lessons learned for improved risk management and corporate governance by both boards of directors and management. Especially for U.S. banks, the 2010 Dodd-Frank Act now requires all U.S. banks supervised by the Federal Reserve Bank to have risk management committees with at least one “risk management expert” on the committee. However, the $6.2 billion “London whale” loss at JPMorgan Chase in 2012 has motivated large institutional shareholders of JPMorgan Chase common stock to demand the removal of three risk management board members. It was hard to determine the “risk management expert” among the four committee members: a JPMorgan Chase director since 1991, the head of Honeywell International, a former KPMG executive, or the president of the American Museum of National History. Internationally, the proportion of bank boards that have risk committees was significantly higher in Europe in 2005 (26.6%) than in the United States (9.6%) (Allemand et al 2013). When a board decides to create a risk committee, it shows greater awareness of the importance of risk management and control (Hermanson 2003). When risks are complex and when the regulatory environment is strong, the creation of a risk committee becomes necessary and a risk management committee can help to make the profile risk of a bank more intelligible to the board. The presence of such a committee should lead to a lower risk (Brown, Steen and Foreman 2009). However, Countrywide had a risk management committee. Although it was repeatedly warned of investment risks by senior Countrywide executives, it ignored such risk warnings. Similarly, a weak system of management control was found to be a key, recurring structural factor in corporate governance implications from the 2008 financial crisis (Grove et al 2012). The following excerpts from the forensic accounting report on Countrywide are used to develop six key risk management lessons that should have been learned by any bank risk management committee for improved corporate governance. This forensic accounting report for Countrywide Financial Services was prepared by Gordon Yale, a practicing forensic accountant in Denver, Colorado. This forensic investigation of Countrywide was performed at the request of the Attorney General of the State of Florida who used the resulting forensic report in litigation against Countrywide’s Chief Executive Officer, Angelo Mozilo. A Florida court threw the Mozilo case out because Mr. Mozilo was not a resident of the state. Before an appeal by the Florida Attorney General was decided, the Mozilo case was dropped because Bank of America, which had acquired Countrywide as it neared financial collapse in 2008, settled a larger action with eleven states, including Florida, for approximately $8.4 billion. In doing so, Bank of America avoided prosecution for Countrywide’s alleged fraudulent conduct – inducing customers into taking out subprime mortgages and other risky, high-cost loans. The State of Florida’s share of that settlement was nearly $1 billion. This forensic report was used to develop key risk management lessons learned from Countrywide which was the largest generator of these risky, “no-doc” (no significant applicant qualifications) subprime mortgages and other high-cost loans which helped precipitate the 2008 financial crisis.
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McDonald, Oonagh Anne. "The federal housing finance agency’s complaints against seventeen banks." Journal of Financial Crime 23, no. 1 (December 31, 2015): 22–44. http://dx.doi.org/10.1108/jfc-09-2015-0047.
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Purpose – The purpose of this paper is to examine the basis of the complaints against banks which sold private label securities to Fannie Mae and Freddie Mac before the financial crisis. The examination shows that all but one of the cases was settled out of court. Nomura and RBS went to court, but the case against them was based on dubious evidence and on strict liability which only enabled the judge to set aside relevant evidence. The Securities and Exchange Commission’s evidence against senior executives of Fannie and Freddie shows that they deliberately purchased PLSs based on subprime loans to meet the government’s housing targets. Design/methodology/approach – The research was based on publicly available documents, including details of the Federal Housing Finance Agency’s (FHFA) complaints against the banks in question, the settlement agreements published by the DoJ, FHFA and SEC. Furthermore, it includes documentary evidence from the Financial Crisis Inquiry Committee and Senate Committees, the full transcript of the trial, opinions of the judge for the trial and the judgement. Findings – The findings are that many have concluded that settlements out of court fail to satisfy the demand for justice. They have been criticised as a trade-off between the prosecutor and the bank, with a view that the imposition of large fines is to pay back taxpayers’ money spent on rescuing the banks, rather than punishing those responsible. Such fines do little, if anything, to change the behaviour of banks. As a result, the Department of Justice issued a memorandum on 9 September to focus on individual accountability for corporate wrongdoing. It remains to be seen how many cases against senior executives will result from the change in direction. Research limitations/implications – The implications of the research are that it is important even in the aftermath of such a serious if not devastating financial crisis to ensure that the laws are properly applied and can stand up to any challenge that it has been stretched to obtain the results the administration of the day wants to see. In addition, care must be taken over both the imposition of large fines and the use to which the monies should be put. All the parties involved in bringing about the crisis should be held to account. The major cases against the banks have almost all been “resolved”. A change in direction has now taken place. Practical implications – The practical implications of holding individuals to account should now be tackled. It requires a careful examination of the laws and regulations already in place to ensure that it is clear within a bank as to who is responsible for what. It will only be possible to hold senior individuals to account if the laws are clear and if all the evidence is not hidden. It may also require a review of the contracts under which senior executives are employed, because to remove a person from his post and then find that he still has a large pension pot and bonuses due may not result in justice either. A delicate balancing act is required because banks require highly competent and motivated individuals to run them. Social implications – If a very large fine is imposed on a bank, the shareholders and customers pay. The shareholders will mostly own the shares through their pensions and their savings in mutual funds. Originality/value – There have been few studies of all the cases against the banks brought by the DoJ and FHFA and still fewer have recognized the fact that government housing policy was the source of the extent of the subprime mortgages.
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Pajarskas, Vaidotas, and Aldona Jočienė. "Subprime mortgage crisis in the United States in 2007–2008: causes and consequences (part II)." Ekonomika 94, no. 1 (March 31, 2015): 7–41. http://dx.doi.org/10.15388/ekon.2015.1.5317.
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This is the second part of the qualitative and quantitative research on the subprime mortgage crisis in the United States in 2007–2008. The main purpose of this research is to determine the factors and how they contributed to the subprime mortgage crisis, what their causal links and effects on the markets and the whole economy were, and to assess what actions could have been taken by the Federal Reserve and the Government in order to mitigate or prevent the consequences of the subprime mortgage crisis and the housing bubble. In order to obtain the results, the authors performed a qualitative analysis of the scientific literature on the course of events and their development that led to the subprime mortgage crisis and focused on insufficiently regulated home mortgage market expansion, the impact on subprime mortgage crisis of financial innovations and financial engineering, poorly evaluated systemic risks and policy undertaken by both the U.S. Government and the Federal Reserve before and after the crisis. The quantitative research focused on two main parts: firstly, the analysis of dependencies between the causes of subprime mortgage crisis and the consequences using the statistical and regression analysis; secondly, an alternative path the Government and the Federal Reserve could have taken in their policy actions, and the results they could have produced have been explored. The authors believe that the results of the research could give useful guidelines to the central bankers and government officials on how to make long-term decisions that can help in preparing for the financial distress, mitigating the consequences when the crisis strikes, accelerating the recovery and even preventing the crisis in the future.
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Immergluck, Dan. "A Symposium on the Subprime Crisis." City & Community 8, no. 3 (September 2009): 341–45. http://dx.doi.org/10.1111/j.1540-6040.2009.01292_1.x.
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The subprime crisis in mortgage lending and the resulting wave of foreclosures have been hitting cities and communities all over the United States. First, Dan Immergluck argues that there are three main elements in the financial crisis: (1) the vertical disintegration of the mortgage market and the related securitization; (2) financial deregulation; and (3) the burgeoning supply of high–risk capital. Second, Manuel Aalbers counters the view that the Community Reinvestment Act (CRA) and the associated community reinvestment movement can be blamed for the subprime mortgage crisis. He lists five reasons why the CRA is not guilty. Third and finally, Peter Marcuse sees the subprime crisis as a result of the underlying economic system. He argues that the private sector should not be viewed as the appropriate means of providing housing. He discusses a number of proposals that impact on the crisis and its roots.
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Pajarskas, Vaidotas, and Aldona Jočienė. "SUBPRIME MORTGAGE CRISIS IN THE UNITED STATES IN 2007–2008: CAUSES AND CONSEQUENCES (PART I)." Ekonomika 93, no. 4 (January 1, 2015): 85–118. http://dx.doi.org/10.15388/ekon.2014.93.5042.
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The main purpose of this article is to determine which factors and how contributed to the subprime mortgage crisis in the United States in 2007–2008, what their causal links and effects on the markets and the whole economy were, and to assess what actions could have been taken by the Federal Reserve and the Government in order to mitigate or prevent the consequences of subprime mortgage crisis and housing bubble. In order to obtain the research results, the authors performed a qualitative analysis of the scientific literature on the course of events and their development that led to the subprime mortgage crisis, and focused on the insufficiently regulated home mortgage market expansion, the impact on the subprime mortgage crisis of financial innovations and financial engineering, poorly evaluated systemic risks and policy undertaken by both the U.S. Government and the Federal Reserve before and after the crisis. The quantitative research focused on two main parts: firstly, analysis of the dependence between the causes of subprime mortgage crisis and the consequences, using a statistical and regression analysis, and secondly, an alternative path the Government and the Federal Reserve could have taken in their policy actions and the results they could have produced. The authors believe that the results of the research could give useful guidelines to the central bankers and government officials on how to make long-term decisions that can help in preparing for the financial distress, mitigating the consequences when the crisis strikes, accelerating the recovery and even preventing the crisis it in the future. The second part of the qualitative research will appear in the next issue of the journal.
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Petersen, M. A., M. C. Senosi, J. Mukuddem-Petersen, M. P. Mulaudzi, and I. M. Schoeman. "Did Bank Capital Regulation Exacerbate the Subprime Mortgage Crisis?" Discrete Dynamics in Nature and Society 2009 (2009): 1–34. http://dx.doi.org/10.1155/2009/742968.
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This contribution is the second in a series of papers on discrete-time modeling of bank capital regulation and its connection with the subprime mortgage crisis (SMC). The latter was caused by, amongst other things, the downturn in the U.S. housing market, risky lending and borrowing practices, inaccurate credit ratings, credit default swap contracts as well as excessive individual and corporate debt levels. The Basel II Capital Accord's primary tenet is that banks should be given more freedom to decide how much risk exposure to permit; a practice brought into question by the SMC. For instance, institutions worldwide have badly misjudged the risk related to investments ranging from subprime mortgage loans to mortgage-backed securities (MBSs). Also, analysts are now questioning whether Basel II has failed by allowing these institutions to provision less capital for subprime mortgage loan losses from highly rated debt, including MBSs. Other unintended consequences of Basel II include the procyclicality of credit ratings and changes in bank lending behavior. Our main objective is to model the dependence of bank credit and capital on the level of macroeconomic activity under Basel I and Basel II as well as its connection with banking behavior for the period before and during the SMC.
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Szabłowska, Ewa. "The financial crisis and securitization." Journal of Education Culture and Society 1, no. 1 (January 17, 2020): 37–48. http://dx.doi.org/10.15503/jecs20101.37.48.
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Securitization means the change of non-liquid assets into securities. This topic has become more popular, mainly due to the U.S. subprime mortgage crisis. In this article, an analysis is given of the current situation in financial markets and the changes, which were implemented from the first days of subprime crisis. Also mentioned is the impact the crisis has had on securitization development. Part of the article is devoted to the situation on the Polish financial market. It is quite a new market and it is susceptible to such crises. The Article presents the part played by securitization in the Polish financial market and the circumstances for its growth in the near future. It also covers the latest information related to financial market regulations, which could have direct or indirect impact on the quantity and value of securitization transactions.
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Petersen, M. A., J. Mukuddem-Petersen, B. De Waal, M. C. Senosi, and S. Thomas. "Profit and Risk under Subprime Mortgage Securitization." Discrete Dynamics in Nature and Society 2011 (2011): 1–64. http://dx.doi.org/10.1155/2011/849342.
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We investigate the securitization of subprime residential mortgage loans into structured products such as subprime residential mortgage-backed securities (RMBSs) and collateralized debt obligations (CDOs). Our deliberations focus on profit and risk in a discrete-time framework as they are related to RMBSs and RMBS CDOs. In this regard, profit is known to be an important indicator of financial health. With regard to risk, we discuss credit (including counterparty and default), market (including interest rate, price, and liquidity), operational (including house appraisal, valuation, and compensation), tranching (including maturity mismatch and synthetic) and systemic (including maturity transformation) risks. Also, we consider certain aspects of Basel regulation when securitization is taken into account. The main hypothesis of this paper is that the SMC was mainly caused by the intricacy and design of subprime mortgage securitization that led to information (asymmetry, contagion, inefficiency, and loss) problems, valuation opaqueness and ineffective risk mitigation. The aforementioned hypothesis is verified in a theoretical- and numerical-quantitative context and is illustrated via several examples.
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Sangeeta, Sangeeta, and Vinay Chamoli. "U.S. Sub-Prime Crisis: Origin and Causes." International Journal of Management, Entrepreneurship, Social Science and Humanities 3, no. 1 (June 30, 2020): 24–33. http://dx.doi.org/10.31098/ijmesh.v3i1.139.
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The purpose of this paper is to explain the boom and bust of the housing market in the U.S. and how the sub-prime mortgages gave birth to new securitized products in the global economy. The majority of the researches conducted previously to explore the reason for the sub-prime crisis and its impact on the volatility on the stock market of the home country (U.S.) and the other developing countries. This paper also contributes to the literature about causes, timeline, and major crisis events during the crisis period. The literature on the Subprime crisis revealed many causes of the Sub-prime crisis. These were Imprudent Mortgage Lending, Housing Bubble, Global Imbalances, Securitization, Lack of Transparency and Accountability in Mortgage Finance, Rating Agencies- The credit rating agencies gave AAA ratings to numerous issues of subprime mortgage-backed securities, many of which were subsequently downgraded to junk status. Deregulatory Legislation, Government-Mandated Sub-prime Lending, Complexity of certain financial instruments, Failure of Risk Management Systems, Excessive Leverage and Relaxed Regulation of Leverage were the most discussed reasons of Subprime Crisis.
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Wang, Ryan P. "Cause Determination of the Adjustable-Rate Mortgage Market Collapse During the Financial Crisis." International Journal of Economics and Finance 12, no. 11 (October 20, 2020): 83. http://dx.doi.org/10.5539/ijef.v12n11p83.
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This paper provides insight into what caused the decline of the adjustable-rate mortgage (ARM) market during the 2007–2009 financial crisis. Contrary to common perception, the failure of the ARM market cannot be primarily attributed to predatory lending targeting subprime borrowers from low-credit households. This popular narrative is incomplete and disregards some important factors. I present three key factors that challenge the narrative and point to previously undiscussed sources that may have contributed to the ARM market collapse. First, the accusation of predatory lending does not account for other possible causes of mass ARM defaults. Second, the sole focus on the market’s subprime segment disregards the impact of prime ARMs on the market. Third, the narrative’s citation of subprime ARMs having greater delinquency rates and foreclosure numbers fails to recognize the significant percentage increase in prime ARM failures in the years leading up to the crisis, as well the disparity in typical outstanding balances between subprime and prime ARMs.
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Calem, Paul, Christopher Henderson, and Jonathan Liles. "“Cherry picking” in subprime mortgage securitizations: Which subprime mortgage loans were sold by depository institutions prior to the crisis of 2007?" Journal of Housing Economics 20, no. 2 (June 2011): 120–40. http://dx.doi.org/10.1016/j.jhe.2011.04.002.
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Chang, Chia-Chien. "VALUATION OF MORTGAGE INSURANCE CONTRACTS WITH COUNTERPARTY DEFAULT RISK: REDUCED-FORM APPROACH." ASTIN Bulletin 44, no. 2 (March 11, 2014): 303–34. http://dx.doi.org/10.1017/asb.2014.4.
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AbstractIn the recent subprime mortgage crisis, which has caused banks and insurance companies to go bankrupt or into acquisition, the lender and insurer have exhibited not only correlated defaults when exposed to common risk factors but also counterparty default risk, which is triggered by mortgage defaults. Given the correlated defaults and the counterparty default risk, we use the reduced-form approach to derive the closed-form formulas of mortgage insurance contracts with premium refunds, annual premiums and upfront premiums. Regardless of the nature of the premium structures, the numerical analysis with parameter calibration demonstrates that both the correlated defaults and the counterparty default risk significantly impact mortgage insurance premiums, particularly in long-term mortgage loans.
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Hsu, Chen-Min, and Wan-Chun Liu. "Bank Failure Model for Asian Financial Crisis and Subprime Mortgage Crisis : A Comparison." Korea and the World Economy 20, no. 1 (April 30, 2019): 65–104. http://dx.doi.org/10.46665/kwe.2019.04.20.1.65.
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Adelino, Manuel, Antoinette Schoar, and Felipe Severino. "The Role of Housing and Mortgage Markets in the Financial Crisis." Annual Review of Financial Economics 10, no. 1 (November 2018): 25–41. http://dx.doi.org/10.1146/annurev-financial-110217-023036.
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Ten years after the financial crisis of 2008, there is widespread agreement that the boom in mortgage lending and its subsequent reversal were at the core of the Great Recession. We survey the existing evidence, which suggests that inflated house-price expectations across the economy played a central role in driving both the demand for and the supply of mortgage credit before the crisis. The great misnomer of the 2008 crisis is that it was not a subprime crisis but rather a middle-class crisis. Inflated house-price expectations led households across all income groups, especially the middle class, to increase their demand for housing and mortgage leverage. Similarly, banks lent against increasing collateral values and underestimated the risk of defaults. We highlight how these emerging facts have essential implications for policy.
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CHOI, YOUNGNA. "BORROWING CAPACITY, FINANCIAL INSTABILITY, AND CONTAGION." International Journal of Theoretical and Applied Finance 22, no. 01 (February 2019): 1850060. http://dx.doi.org/10.1142/s0219024918500607.
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We use the case of the 2007 United States subprime mortgage crisis to investigate the impact of borrowing capacity limitations on financial instability and contagion. We divide an economy into agents that interact via flow of funds and express the financial instability level of each agent as a function of time derivatives of its wealth, cash inflows, and borrowing capacity. We show that among these factors, the borrowing capacity, which is determined by other economic constraints, has the largest impact on financial instability. It is suggested that borrowing capacity limitations could even cause contagion through feedback loop formed by flow of funds. We use historical time series of the integrated macroeconomic accounts of the United Stated from 1960 to 2017 to verify our conjecture by quantifying the financial instability levels of the agents under different levels of borrowing capacity and how they affect one another during the period of the subprime mortgage crisis. Finally, the constraints of data collecting practice outside the United States in assessing borrowing capacity is addressed, accompanied by partial, yet compatible, results of selected Eurozone countries.
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Sharma, Shalendra D. "The U.S. Subprime Mortgage Crisis: Credit Crunch and Global Financial Meltdown." Artha Vijnana: Journal of The Gokhale Institute of Politics and Economics 50, no. 3 (September 1, 2008): 268. http://dx.doi.org/10.21648/arthavij/2008/v50/i3/115441.
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Avramenko, Richard, and Richard Boyd. "Subprime Virtues: The Moral Dimensions of American Housing and Mortgage Policy." Perspectives on Politics 11, no. 1 (March 2013): 111–31. http://dx.doi.org/10.1017/s1537592712003672.
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The so-called “subprime mortgage crisis” has led to intense scrutiny of American housing policy, mortgage finance, and even the goods of homeownership. Some critics allege that the housing bubble and ensuing financial crisis were consequences of misguided state intervention, while others contend that the sources of the crisis lay in the pathologies of unregulated markets. Both sides, however, treat the crisis and its underlying causes primarily through an economic lens of cost-benefit analysis. Building on the insights of contemporary political theorists and the new institutionalism in political science, we consider American housing policy from the vantage of virtue theory. Not only is housing and mortgage policy inevitably normative, but public policy can be an important tool in fostering what we call the “subprime virtues” of truth-telling, promise-keeping, frugality, moderation, commitment, foresight, and judgment that are absolute prerequisites for any decent society.
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Watson, Ronald D. "Subprime Mortgages, Market Impact, and Safety Nets." Review of Pacific Basin Financial Markets and Policies 11, no. 03 (September 2008): 465–92. http://dx.doi.org/10.1142/s021909150800143x.
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The US financial system is undergoing a painful restructuring as credit losses originating in the mortgage finance sector of the economy grow ever larger. A combination of factors including general prosperity, demographic shifts in demand for housing, low interest rates, innovations in mortgage lending and securitization, and a breakdown in credit quality control systems all contributed to this problem. Public policymakers and industry leaders are struggling to find ways to stem the credit losses, restructure and recapitalize the financial industry, and set the economy on a path to recovery. This paper reviews the origins of this problem, explains the events that precipitated the crisis in 2007, and analyzes the pros and cons of the "fixes" that have been proposed to address these problems.
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LAWSON, ANDREW. "Foreclosure Stories: Neoliberal Suffering in the Great Recession." Journal of American Studies 47, no. 1 (September 13, 2012): 49–68. http://dx.doi.org/10.1017/s0021875812001326.
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This article examines how the foreclosure crisis has been represented in a range of narrative genres: the reportage of Paul Reyes's Exiles in Eden: Life among the Ruins of Florida's Great Recession (2010), Michael Moore's documentary film Capitalism: A Love Story (2009), and Paul Auster's novel Sunset Park (2010).These narratives attempt to contextualize the human beings caught in the center of the subprime mortgage storm, but in the process each of them runs up against an opacity or obscurity, a crisis of representation. The article argues that underlying the financial crisis is an inability to recognize and comprehend deeply embedded structures of inequality, a failure common to both the financial system and the wider culture. Drawing on recent accounts of the techniques of credit scoring and mortgage securitization in the disciplines of business history, accounting, financial management, and human geography, the article concludes that subprime mortgage lending involved social relations of supremacy and subordination, as well as representational strategies which identified individuals solely in terms of credit risk, while failing to grasp the conditions of poverty and disadvantage which constituted them as a class.
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Puah, Chin-Hong, Rayenda Khresna Brahmana, and Kai-Hung Wong. "Revisiting Stock Market Integration Pre-Post Subprime Mortgage Crisis: Insight From BRIC Countries." Economics and Finance in Indonesia 61, no. 2 (August 1, 2015): 120. http://dx.doi.org/10.7454/efi.v61i2.507.
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AbstractThis study revisits the long-run relationships and short-run dynamic causal linkages among BRIC stock market, with the particular attention to the 2008 subprime mortgage crisis. Extending related empirical studies, comparative analyses of pre-crisis, and post-crisis periods were conducted to comprehensively evaluate how stock market integration was affected by financial crises. In general, after employing cointegration test and VAR test, the results reveal the increase of stock market integration in BRICs after the subprime crisis. The evidence also found that China stock market is the most influential among the BRICs, in which China stock market has the ability to Granger cause the other three BRICs member countries. An important implication of our findings is that the degree of integration among countries tends to change over time, especially around periods marked by financial crises. AbstrakPenelitian ini mengkaji ulang hubungan jangka panjang dan hubungan kausal dinamis jangka pendek antara pasar modal negara-negara BRIC, terutama pada saat krisis subprime mortgage 2008. Pengayaan studi empiris yang terkait dan analisa perbandingan sebelum-sesudah krisis dilakukan untuk mengevaluasi secara komprehensif tentang bagaimana krisis keuangan memengaruhi integrasi pasar modal. Secara umum, setelah menggunakan uji kointegrasi dan uji VAR, hasil penelitian ini memperlihatkan peningkatan integrasi pasar modal di negara-negara BRIC setelah terjadinya krisis subprime. Penelitian ini juga membuktikan bahwa pasar modal Cina adalah pasar yang paling berpengaruh di antara negara BRIC, di mana pasar modal Cina memiliki kemampuan untuk memengaruhi secara Granger Causality tiga negara anggota BRIC lainnya. Implikasi penting dari temuan kami adalah bahwa tingkat integrasi antara negara-negara cenderung berubah dari waktu ke waktu, terutama sekitar periode yang ditandai oleh krisis keuangan.Kata kunci: Integrasi Pasar; Subprime Mortgage; Krisis Keuangan; BRICJEL classifications: F15; G15; G21; C32
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Chen, Jian Bao, Ting Yang, and Huo Biao Zhou. "Contagion Effect Analysis of Financial Crisis in Soybean Futures Markets Based on Copula Functions." Applied Mechanics and Materials 198-199 (September 2012): 885–88. http://dx.doi.org/10.4028/www.scientific.net/amm.198-199.885.
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Using five kinds of Copula functions to investigate the changes of correlations among soybean futures in Tokyo Grain Exchange, Chicago Board of Trade and Dalian Commodity Exchange market before and after the financial crisis caused by American subprime mortgage, this paper verifies the existence of contagion effect of this crisis in the international soybean futures markets.
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Hellwig, Martin F. "Systemic Risk in the Financial Sector: An Analysis of the Subprime-Mortgage Financial Crisis." De Economist 157, no. 2 (June 2009): 129–207. http://dx.doi.org/10.1007/s10645-009-9110-0.
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Donnelly, Catherine, and Paul Embrechts. "The Devil is in the Tails: Actuarial Mathematics and the Subprime Mortgage Crisis." ASTIN Bulletin 40, no. 1 (May 2010): 1–33. http://dx.doi.org/10.2143/ast.40.1.2049222.
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AbstractIn the aftermath of the 2007-2008 financial crisis, there has been criticism of mathematics and the mathematical models used by the finance industry. We answer these criticisms through a discussion of some of the actuarial models used in the pricing of credit derivatives. As an example, we focus in particular on the Gaussian copula model and its drawbacks. To put this discussion into its proper context, we give a synopsis of the financial crisis and a brief introduction to some of the common credit derivatives and highlight the difficulties in valuing some of them.We also take a closer look at the risk management issues in part of the insurance industry that came to light during the financial crisis. As a backdrop to this, we recount the events that took place at American International Group during the financial crisis. Finally, through our paper we hope to bring to the attention of a broad actuarial readership some “lessons (to be) learned” or “events not to be forgotten”.
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Bublyk, Yevhen. "Potential and limitations of post-crisis recovery of Ukrainian mortgage market." Ukrainian society 2013, no. 2 (2013): 127–39. http://dx.doi.org/10.15407/socium2013.02.127.
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The article analyzes the structural characteristics of the mortgage lending market caused by the impact of financial and economic crisis. The evaluation of government programs to support housing mortgage loans is conducted,conclusions and recommendations are made on future actions for the resumption of bank mortgage lending through improving institutional structure, legal support and government programs.
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Chin, Wen Cheong, Min Cherng Lee, Tan Pei Pei, Grace Lee Ching Yap, and ChristineTan Nya Ling. "Dynamic Long Memory High Frequency Multipower Variation Volatility Evaluations for S&P500." Modern Applied Science 10, no. 5 (February 4, 2016): 1. http://dx.doi.org/10.5539/mas.v10n5p1.
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<p class="MsoNormal" style="text-align: justify; text-justify: inter-ideograph; tab-stops: 56.7pt;">This study explores the multipower variation integrated volatility estimates using high frequency data in financial stock market. The different combinations of multipower variation estimators are robust to drastic financial jumps and market microstructure noise. In order to examine the informationally market efficiency, we proposed a rolling window estimate procedures of Hurst parameter using the modified rescale-range approach. In order to test the robustness of the method, we have selected the S&P500 as the empirical data. The empirical study found that the long memory cascading volatility is fluctuating across the studied period and drastically trim down after the subprime mortgage crisis. This time-varying long memory analysis allow us to understand the informationally market efficiency before and after the subprime mortgage crisis in U.S.</p>
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Foote, Christopher L., and Paul S. Willen. "Mortgage-Default Research and the Recent Foreclosure Crisis." Annual Review of Financial Economics 10, no. 1 (November 2018): 59–100. http://dx.doi.org/10.1146/annurev-financial-110217-022541.
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This article reviews the surge in research on mortgage default inspired by the recent foreclosure crisis. Economists already understood a great deal about default, both theoretically and empirically, when the crisis began, but new research has moved the frontier further by improving data sources, building dynamic optimizing models of default, and explicitly addressing reverse causality between rising foreclosures and falling house prices. Mortgage defaults also featured prominently in early papers that pointed to subprime and other privately securitized mortgages as fundamental drivers of the housing boom, although this research has been criticized recently. Going forward, improvements to data and models will allow researchers to make progress on the two central questions in this literature. First, what are the relative contributions of adverse life events and negative equity to mortgage default? Second, why is default so rare, even among people with deep negative equity or acute financial distress?
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Li, Wenli, Michelle J. White, and Ning Zhu. "Did Bankruptcy Reform Cause Mortgage Defaults to Rise?" American Economic Journal: Economic Policy 3, no. 4 (November 1, 2011): 123–47. http://dx.doi.org/10.1257/pol.3.4.123.
Full textAbstract:
Homeowners in financial distress can use bankruptcy to avoid defaulting on their mortgages, since filing loosens their budget constraints. But the 2005 bankruptcy reform made bankruptcy less favorable to homeowners and therefore caused mortgage defaults to rise. We test this relationship and find that the reform caused prime and subprime mortgage default rates to rise by 23% and 14%, respectively. Default rates rose even more for homeowners who were particularly negatively affected by the reform. We calculate that bankruptcy reform caused mortgage default rates to rise by one percentage point even before the start of the financial crisis. (JEL D14, G01, G21, K35)
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Josipović, Tatjana. "Consumer Protection in EU Residential Mortgage Markets: Common EU Rules on Mortgage Credit in the Mortgage Credit Directive." Cambridge Yearbook of European Legal Studies 16 (2014): 223–53. http://dx.doi.org/10.1017/s1528887000002603.
Full textAbstract:
AbstractFor many years now, there has been an attempt in the European Union to create a common legal framework for mortgage credit contracts and cross-border activities in the mortgage financial sector. One of the greatest challenges has been the establishment of a corresponding level of consumer protection in EU residential mortgage markets. This issue has become particularly important at the time of financial crisis. Consumers are increasingly exposed to the risk of losing their homes because of failing to fulfil, in due time, their obligations arising from mortgage loans, and thus losing confidence in the EU financial sector. Therefore, the European Union has intensified its efforts to improve consumers’ ability to inform themselves of the potential risks when entering into mortgage loans and mortgaging their real property. On 4 February 2014 the EU adopted the new rules on mortgage credits in the Mortgage Credit Directive. The main objective of the Directive is to increase the protection of consumers in EU mortgage markets from the risks of defaults and foreclosures. A higher level of protection must be ensured by consumers’ increased information capacity related to mortgage credits, as well as by developing a responsible mortgage lending practice across the EU. The Mortgage Credit Directive is also aimed at contributing to the gradual establishment of a single internal market for mortgage credits. In this chapter, the author analyses previous and current attempts by the EU to establish a uniform market of mortgage loans, and assesses the possible impact of the Mortgage Credit Directive on the protection of consumers in the market of mortgage credits and on the development of cross-border activities in the mortgage financial sector. Special emphasis is placed on the possible impact of the new EU rules on mortgages on national protection measures aimed at consumer protection at the time of financial crisis. The transposition of the Mortgage Credit Directive will undoubtedly contribute to a higher level of consumer protection when consumers enter into home loan contracts. However, the question arises whether, because of different levels of harmonisation of some rules laid down in the Directive, its implementation will actually contribute to an increase in cross-border home loans. The possibility for Member States to opt for increased consumer protection in some aspects of credit agreements when implementing the Directive, or the existence of different options for the exercise of individual rights that they may use cannot bring about an integration of mortgage credit markets.