Subprime Mortgages, Market Impact, and Safety Nets

Ronald D. Watson ()
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Ronald D. Watson: Rutgers Business School, Rutgers University, 94 Rockefeller Road, Piscataway, NJ, USA

Review of Pacific Basin Financial Markets and Policies (RPBFMP), 2008, vol. 11, issue 03, 465-492

Abstract: The US financial system is undergoing a painful restructuring as credit losses originating in the mortgage finance sector of the economy grow ever larger. A combination of factors including general prosperity, demographic shifts in demand for housing, low interest rates, innovations in mortgage lending and securitization, and a breakdown in credit quality control systems all contributed to this problem. Public policymakers and industry leaders are struggling to find ways to stem the credit losses, restructure and recapitalize the financial industry, and set the economy on a path to recovery. This paper reviews the origins of this problem, explains the events that precipitated the crisis in 2007, and analyzes the pros and cons of the "fixes" that have been proposed to address these problems.

Keywords: Subprime mortgage; securitization; credit risk; monetary policy; G21; G28; E44; E63 (search for similar items in EconPapers)
JEL-codes: G1 G2 G3 (search for similar items in EconPapers)
Date: 2008
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Citations: View citations in EconPapers (9)

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DOI: 10.1142/S021909150800143X

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