Incentives in the Financial Crisis of Our Time

Robert W. Kolb

The Journal of Economic Asymmetries, 2010, vol. 7, issue 2, 21-55

Abstract: This article traces the incentives that infected every part of the chain of relationships that constitute the Originate-To-Distribute (OTD) Model of mortgage production. At every step, the OTD Model introduced incentive conflicts that were absent or largely ameliorated in the old Originate-To-Hold (OTH) Model. The article shows how these incentive conflicts helped to create the bubble in housing prices in the United States that started to deflate in 2007 and that led to the financial crisis of 2007-2009.

Keywords: D02; D14; D18; G18; G21; G24; H11; H12; H23; H81; K23; L22; L51; L85; L88; Credit agencies; Ethics; Executive compensation; Financial crisis; Incentive alignment; Incentives; Mortgages (search for similar items in EconPapers)
Date: 2010
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:joecas:v:7:y:2010:i:2:p:21-55

DOI: 10.1016/j.jeca.2010.02.003

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