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More About This Title The Rise and Fall of the U.S. Mortgage and CreditMarkets: A Comprehensive Analysis of the Market Meltdown
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The mortgage meltdown: what went wrong and how do we fix it?
Owning a home can bestow a sense of security and independence. But today, in a cruel twist, many Americans now regard their homes as a source of worry and dashed expectations. How did everything go haywire? And what can we do about it now?
In The Rise and Fall of the U.S. Mortgage and Credit Markets, renowned finance expert James Barth offers a comprehensive examination of the mortgage meltdown. Together with a team of economists at the Milken Institute, he explores the shock waves that have rippled through the entire financial sector and the real economy. Deploying an incredibly detailed and extensive set of data, the book offers in-depth analysis of the mortgage meltdown and the resulting worldwide financial crisis. This authoritative volume explores what went wrong in every critical area, including securitization, loan origination practices, regulation and supervision, Fannie Mae and Freddie Mac, leverage and accounting practices, and of course, the rating agencies. The authors explain the steps the government has taken to address the crisis thus far, arguing that we have yet to address the larger issues.
- Offers a comprehensive examination of the mortgage market meltdown and its reverberations throughout the financial sector and the real economy
- Explores several important issues that policymakers must address in any future reshaping of financial market regulations
- Addresses how we can begin to move forward and prevent similar crises from shaking the foundations of our financial system
The Rise and Fall of the U.S. Mortgage and Credit Markets analyzes the factors that should drive reform and explores the issues that policymakers must confront in any future reshaping of financial market regulations.
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JAMES R. BARTH is a Senior Fellow at the Milken Institute and the Lowder Eminent Scholar in Finance at Auburn University. His research focuses on financial institutions and capital markets, both domestic and global, with special emphasis on regulatory issues. Barth was an appointee of Presidents Ronald Reagan and George H.W. Bush as chief economist of the Federal Home Loan Bank Board and later of the Office of Thrift Supervision. He has authored more than 200 articles in professional journals and has written and edited several books, including The Great Savings and Loan Debacle, The Reform of Federal Deposit Insurance, and Rethinking Bank Regulation: Till Angels Govern. Barth has been quoted in publications ranging from the New York Times to the Wall Street Journal and has appeared on broadcast programs including The McNeil/Lehrer NewsHour, Good Morning America, Moneyline, and CNBC's Closing Bell.
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List of Illustrations xi
List of Tables xxv
Acknowledgments xxxiii
Chapter 1 Overleveraged, from Main Street to Wall Street 1
Chapter 2 Overview of the Housing and Mortgage Markets 9
Housing Units, Mortgage Debt, and Household Wealth 9
Types of Home Mortgages 15
Two Housing Finance Models: Originate-to-Hold vs. Originate-to-Distribute 22
Low Interest Rates Contribute to Credit Boom and Record Homeownership Rates 29
Mortgage Originations, Home Prices, and Sales Skyrocket 36
Chapter 3 Buildup and Meltdown of the Mortgage and Credit Markets 41
What Is a Subprime Mortgage and Who Is a Subprime Borrower? 42
Subprime Lending Grows Rapidly and New Products Gain Acceptance 46
Subprime Mortgages Enable More Widespread Homeownership 56
Securitization Facilitates the Funding of Subprime Mortgages 61
The Housing Bubble Reaches the Breaking Point 65
The Collapse Begins 74
Chapter 4 When Will the Crisis End? 101
What Is the Damage Scorecard to Date? 102
The Pain Spreads throughout the Financial Sector and Beyond 112
When Will We Hit Bottom? 135
Chapter 5 What Went Wrong . . . ? 143
. . . with Origination Practices and New Financial Products? 145
. . . with Securitization and Rating Agencies? 153
. . . with Leverage and Accounting Practices? 160
. . . with Fannie Mae and Freddie Mac? 172
. . . with Tax Benefits for Homeownership? 182
. . . with Regulation and Supervision? 184
. . . with the Greed Factor? 204
Assessing the Role of Various Factors to Explain Foreclosures 207
Chapter 6 So Far, Only Piecemeal Fixes 219
The Landscape Shifts for Lenders 220
The Federal Reserve Intervenes to Provide Liquidity and Higher-Quality Collateral 231
Congress and the White House Take Steps to Contain the Damage 249
The FDIC Takes Steps to Instill Greater Confidence in Depository Institutions 269
The Government’s Actions Drive up the Deficit 274
Chapter 7 Where Should We Go from Here? 287
Key Factors That Should Drive Reform 289
Issues for Policymakers 293
Concluding Thoughts 319
Appendix 321
Endnotes 445
Glossary 451
References 479
About the Milken Institute and General Disclaimer 507
About the Authors 509
Index 513
