Implications and Solutions

Marc Jarsulic

Chapter Chapter Five in Anatomy of a Financial Crisis, 2010, pp 125-156 from Palgrave Macmillan

Abstract: Abstract Previous chapters have sketched the trajectory of the ongoing financial crisis. It had its origin in the market for houses. Beginning in 1998, the real price of houses began to rise at an accelerating and historically unprecedented rate. This price trend turned into an asset bubble—houses were bought at prices that made sense only if house prices continued to rise. When the price increases did cease in 2006—because inventories of vacant and unsold houses grew too large—the weakest homeowners were immediately affected. Nonprime borrowers, who were dependent on increased equity to allow them to refinance or at least pay off the value of their loans, were the first to suffer. By 2007 nonprime borrowers were defaulting and going into foreclosure at an accelerating rate.

Keywords: Financial Crisis; House Price; Real Interest Rate; Hedge Fund; Credit Default Swap (search for similar items in EconPapers)
Date: 2010
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Persistent link: https://EconPapers.repec.org/RePEc:pal:palchp:978-0-230-10618-5_5

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DOI: 10.1057/9780230106185_5

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