Book review of Fault Lines by Raghuram G. Rajan

Emilia Garcia-Appendini

Financial Markets and Portfolio Management, 2013, vol. 27, issue 4, 433 pages

Abstract: Most people believe that the recent financial crisis had its roots in a boom in housing lending in the United States. After the dot-com bubble, the argument goes, the Federal Reserve Bank lowered the interest rates to stimulate corporate investment and recover from the downturn. As a side effect of low interest rates, mortgages became cheaper and Americans became attracted to the housing market. Credit for housing was provided by the sophisticated financial system of the United States, which allowed investors to purchase packages of mortgages from diversified geographical locations, and from individuals with different probabilities of default, according to their desired level of risk. As it turned out, these products caught the attention of investors from all over the world, who were attracted by their profitable returns and the implicit guarantees provided by the U.S. government to the issuing agencies and financial intermediaries. Therefore, housing credit was plentiful and, as a consequence, house prices in the United States rose. This in turn allowed mortgage borrowers to refinance their debts and avoid default. The party came to an end when interest rates increased and house prices fell, triggering a series of defaults in mortgages and driving values of the financial products near to zero, resulting in consequences with which we all are too familiar. Copyright Swiss Society for Financial Market Research 2013

Date: 2013
References: Add references at CitEc
Citations:

Downloads: (external link)
http://hdl.handle.net/10.1007/s11408-013-0219-4 (text/html)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:kap:fmktpm:v:27:y:2013:i:4:p:431-433

Ordering information: This journal article can be ordered from
http://www.springer. ... nt/journal/11408/PS2

DOI: 10.1007/s11408-013-0219-4

Access Statistics for this article

Financial Markets and Portfolio Management is currently edited by Manuel Ammann

More articles in Financial Markets and Portfolio Management from Springer, Swiss Society for Financial Market Research Contact information at EDIRC.
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().