The Mortgage Crisis: Tipping Points and Trends Underlying the Housing Boom and its Subsequent Bust
84 Pages Posted: 5 Mar 2010
In The Mortgage Crisis, a PowerPoint presentation, tipping points and enabling trends are identified which, in the author’s opinion, played key roles leading to the housing boom and the subsequent mortgage crisis, which eventually spread to the entire financial system and the real economy. For example, one of the tipping points was the failure of the bond rating agencies to properly assess risks of default of subprime mortgage loans and mortgage-backed structured notes. Another tipping point was the investment banks’ overleveraged positions in structured notes.
Enabling trends include: Greenspan put in the form of setting interest rates too low for too long following the dot.com implosion resulted in unchecked credit expansion; SEC permitted markedly-higher leverage for securities firms in 2004; the political roles of Fannie Mae & Freddie Mac increased risk; globalization of financial markets led to increased risk-taking; building infrastructure for China’s Olympics may have led to the oil price spike and the global economic crisis; and financial models resulted in misaligned incentives for players.
Two Tables of Contents, on Charts 2 and 41, enable the reader to focus on selected topics covered in The Mortgage Crisis, including each of the four major tipping points of the crisis and the thirteen enabling trends.
The spread of the mortgage crisis to the entire financial market is delineated in Mortgage Crisis led to Credit and Illiquidity Crisis, a sequel by the same author.
Keywords: mortgage crisis, housing bubble, mortgage-backed structured notes, Greenspan put, Federal Reserve Bank policies, leveraged investment banks, globalization, financial models' role
JEL Classification: E32, E58, E65, G24, I22, N20
Suggested Citation: Suggested Citation