The Subprime Credit Crisis of 07
Stuart M. Turnbull
University of Houston - C.T. Bauer College of Business
Robert A. Jarrow
Cornell University - Samuel Curtis Johnson Graduate School of Management
July 9, 2008
This paper examines the different factors that have contributed to the subprime mortgage credit crisis: the search for yield enhancement, agency problems, lax underwriting standards, failure by the rating agencies to identify a changing environment, poor risk management by financial institutions, lack of transparency, the limitation of extant valuation models and the failure of regulators to understand the implications of the changing environment for the financial system. The paper addresses the different issues and offers suggestions on how to move forward.
Number of Pages in PDF File: 56
Keywords: Subprime mortgages, SIVs, monolines, transparency, valuation
JEL Classification: G22, G30, G32, G38
Date posted: March 25, 2008 ; Last revised: July 20, 2008
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