Old Wine in a New Bottle: Subprime Mortgage Crisis - Causes and Consequences

Levy Economics Institute Working Paper No. 532

30 Pages Posted: 30 Apr 2008

See all articles by Michael Lim Mah-Hui

Michael Lim Mah-Hui

Nippon Foundation - Asian Public Intellectuals Program

Date Written: April 28, 2008

Abstract

This paper seeks to explain the causes and consequences of the U.S. subprime mortgage crisis, and how this crisis has led to a generalized credit crunch in other financial sectors that ultimately affects the real economy. It postulates that, despite the recent financial innovations, the financial strategies leveraging and financial risk mismatching that led to the present crisis are similar to those found in the U.S. savings-and-loan debacle of the late 1980s and in the Asian financial crisis of the late 1990s. However, these strategies are based on market innovations that have heightened, not reduced, systemic risks and financial instability. They are as the title implies: old wine in a new bottle. Going beyond these financial practices, the underlying structural causes of the crisis are located in the loose monetary policies of central banks, deregulation, and excess liquidity in financial markets that is a consequence of the kind of economic growth that produces various imbalances trade imbalances, financial sector imbalances, and wealth and income inequality.

Keywords: Subprime Mortgage Crisis, Credit Crunch, U.S. Housing Bubble, Collateralized

Suggested Citation

Mah-Hui, Michael Lim, Old Wine in a New Bottle: Subprime Mortgage Crisis - Causes and Consequences (April 28, 2008). Levy Economics Institute Working Paper No. 532. Available at SSRN: https://ssrn.com/abstract=1126274 or http://dx.doi.org/10.2139/ssrn.1126274

Michael Lim Mah-Hui (Contact Author)

Nippon Foundation - Asian Public Intellectuals Program ( email )

Prajadhipok-Rambhai Barni Bldg., Phyath
3rd Floor
Bangkok, 10330
Thailand

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
2,984
Abstract Views
8,814
rank
3,952
PlumX Metrics