Subprime Mortgage Market and Current Financial Crisis

Philip Arestis and Elias Karakitsos
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Elias Karakitsos: PCC, Ltd

Chapter 3 in Housing Market Challenges in Europe and the United States, 2009, pp 40-59 from Palgrave Macmillan

Abstract: Abstract The prevalent view is that the current credit crisis has its origin in the bust of the housing bubble. But what is missing from this view is that the finance of a bubble is only possible through a corresponding increase in credit — no credit, no bubble. Thus at the heart of the current woes lies the excessive liquidity that was put in place in the last ten years or so.3 This liquidity financed in the first instance the internet bubble, but because there was no deleverage following the burst of this bubble the liquidity went on to finance other bubbles, including housing, private equity and commodities. Thus, the housing bubble is a transformation of the previous internet bubble.

Keywords: Monetary Policy; Central Bank; House Price; Private Equity; Credit Spread (search for similar items in EconPapers)
Date: 2009
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DOI: 10.1057/9780230246980_3

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