Money for Nothing and Checks for Free: Recent Developments in U.S. Subprime Mortgage Markets

Kiff, John; Mills, Paul S.

doi:10.2139/ssrn.1006316

Cited by 24 publications

(2 citation statements)

References 8 publications

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“…O epicentro da crise financeira de 2008 é o mercado imobiliário estadunidense, mais especificamente o mercado subprime de hipotecas. O mercado subprime consiste em empréstimos imobiliários que não se adequam à hipoteca prime, ou seja, para pessoas com histórico ruim de crédito e/ou renda insuficiente e que, por isso, possuem grandes chances de não serem totalmente pagos (KIFF & MILLS, 2007). A busca incessante por lucros cada vez maiores levou os bancos e instituições financeiras a desenvolver uma engenharia financeira altamente complexa para aumentar seus lucros com atividades financeiras cada vez mais arriscadas.…”

Section: Crise De 2008unclassified

A Hipótese da Instabilidade Financeira e o Novo Consenso Macroeconômico

Rezende¹

2022

Anais Do(a) Anais Do XV Encontro Internacional Da Associação Keynesiana Brasileira

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The New Consensus in Macroeconomics (NCM) arose in the 1990's in the context of the Great Moderation. It's hypotheses had great influence in the formulation of liberalizing policies and in the relaxation of financial regulations in the period prior to the 2008 financial crisis. This article critically analyzes the theoretical framework of the NCM and it's implications for the formulation of economic policies in the pre-crisis context from Minsky's theory and Financial Instability Hypothesis standpoint.

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Section: Crise De 2008unclassified

A Hipótese da Instabilidade Financeira e o Novo Consenso Macroeconômico

Rezende¹

2022

Anais Do(a) Anais Do XV Encontro Internacional Da Associação Keynesiana Brasileira

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“…The shift from the fixed interest rate to the adjustable one occurred at a previously specified reset date. As Kliff and Mills () note, before the outbreak of the crisis, these hybrid mortgages made up about two thirds of all ARM (adjustable rate mortgage) originations and were basically short‐term fixed rate mortgages that converted into an adjustable rate mortgage after the initial period. Gorton () explains how this kind of contract can be interpreted as a short‐term contract, whose conditions depended on the changes in housing prices.…”

Section: Stylized Factsmentioning

confidence: 99%

Subprime borrowers, securitization and the transmission of business cycles

Grodecka‐Messi

2019

Canadian J of Economics

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A growing literature (e.g., Jaffee et al. 2009, Acharya andSchnabl 2009) argues that securitization improves financial stability if the securitized assets are held by capital market participants, rather than financial intermediaries. I construct a quantitative macroeconomic model with a novel specification for mortgage-backed securities (MBS) to evaluate this claim. My findings suggest that the existence of the securitization market stabilizes the economy under the condition that financial intermediaries do not engage in the acquisition of securitized assets. In the presence of large negative housing preference shocks, the drop in output in the first year after the shock is halved if subprime MBS are purchased by non-financial agents rather than held by banks.

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Four myths and a financial crisis

Vranceanu

2011

Thunderbird Intl Bus Rev

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:The main driving force of the financial crisis of 2007-2009 was a rapid deterioration of the trust of private agents in the quality of financial institutions. In turn, this loss of confidence entailed the collapse of several key asset markets and a sharp decline in the other asset prices. This paper surveys the critical moments of the crisis, puts forward some of the shock amplifying mechanisms and comments on the effectiveness of various policy measures. The conclusion opens the debate on what structural changes in the existing financial architecture are required to contain such crises in the future. Key-Words:-Banking Sector -Economic Myths -Economic Policy -Financial Crisis -Trust RESUME :L'article retrace les moments critiques de la crise financière [2007][2008][2009], étudie les mécanismes de propagation des chocs, évalue les politiques économiques mises en oeuvre pour faire face à cette crise. The main driving force of the financial crisis of 2007-2009 was a rapid deterioration of the trust of private agents in the quality of financial institutions. In turn, this loss of confidence entailed a sharp decline in many asset prices and brought to their knees several large financial institutions with centennial tradition. This paper surveys the critical moments of the crisis, presents some of the shock amplifying mechanisms and comments on the effectiveness of various policy measures. We point out four conceptual myths that did not survived to this crisis. The conclusion opens the debate on what structural changes in the existing financial architecture are required to contain such crises in the future. Mots-clés :-Keywords: Financial crisis; Trust; Economic myths; Banking sector; Economic policy. JEL Classification: E65, G20This is a preprint of an article accepted for publication in the Thunderbird International Business Review, Wiley Publishers, March 2011, Vol. 52/2. 2 IntroductionThis last crisis that some observers refer to as the Great Recession began in the summer of 2007 with reassessment of the risk on subprime American mortgage loans, then turned into a genuine banking system crisis in the US and Europe, ending up as a full-blown real economic crisis affecting most countries in the world by late 2008. 1 Overall, in 2009 the GDP has declined by 2.5% in the United States, 5.3% in Japan and 3.9% in the Euro Area. Unemployment reached levels not seen since the major oil shocks in the 70s, and the fiscal position of many developed countries deteriorated dramatically. The situation is well summarized by Miller and Stiglitz (2010, p.500), "From 2007 to 2009 a chain of events, beginning with unexpected losses in the US-subprime market, was destined to bring the global financial system close to collapse and to drag the world economy into recession".There have of course been other banking crises in the past (at least thirty major crises of the type were recorded between 1980 and 1996), generating substantial private and social costs (Demigüç-Kunt and Detragiache, 1998;Reinhart and Rogoff, 2008)....

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Money for Nothing and Checks for Free: Recent Developments in U.S. Subprime Mortgage Markets

Cited by 24 publications

References 8 publications

A Hipótese da Instabilidade Financeira e o Novo Consenso Macroeconômico

A Hipótese da Instabilidade Financeira e o Novo Consenso Macroeconômico

Subprime borrowers, securitization and the transmission of business cycles

Four myths and a financial crisis

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