Housing Market Crisis
Economic Thought
Alex TodorokiHOUSING MARKET EPIC FAIL 2008
Credit crises - Global cluster F&^# involving: Sub prime mortgages, collateralized debt obligations, frozen credit markets, credit default swaps.
Focus point - Housing Market
Who is affected – Everyone
Housing credit crises two parties – homeowners and investors. Homeowners are of course tied to mortgages (getting screwed), and investors are tied to... Well, ruining everything!
Capital gain includes: Pension funds, Insurance companies, Mutual funds and Sovereign funds, ect.
These two parties are brought together by the financial system – aka Wall Street
Lets have a little background -
The history is fairly prevalent to understand because it kind of sets the stage. “Fannie Mae was created as a governmental organization with an economic and social purpose and with access to financial benefits, such as the ability to borrow at government rates and an exemption from corporate taxation. The privatization of the company created a financial responsibility to its shareholders. It could no longer act like a government organization. It entered a competitive marketplace.” (The Tragedy of the Mortgage Commons)
So essentially this created a monster! Fannie Mae prior to was a government institution and then became a private institution. The large institution is thrown into the lions den were it now has to ensure its shareholders capital gain which in turn forces them to acquire the capability of bending and bowing rules and regulations.
“At least in part, low interest rates were driven by the large current account deficit run by the USA, mirrored by countries like China avidly purchasing US Treasury bonds, but also the decision on the part of the Fed. to keep interest rates lower than in similar previous scenarios. The Fed. – and many of the world’s other leading central banks – continued to pump liquidity into credit markets to ensure credit would continue to flow at low rates of interest.
Alex TodorokiHOUSING MARKET EPIC FAIL 2008
Credit crises - Global cluster F&^# involving: Sub prime mortgages, collateralized debt obligations, frozen credit markets, credit default swaps.
Focus point - Housing Market
Who is affected – Everyone
Housing credit crises two parties – homeowners and investors. Homeowners are of course tied to mortgages (getting screwed), and investors are tied to... Well, ruining everything!
Capital gain includes: Pension funds, Insurance companies, Mutual funds and Sovereign funds, ect.
These two parties are brought together by the financial system – aka Wall Street
Lets have a little background -
The history is fairly prevalent to understand because it kind of sets the stage. “Fannie Mae was created as a governmental organization with an economic and social purpose and with access to financial benefits, such as the ability to borrow at government rates and an exemption from corporate taxation. The privatization of the company created a financial responsibility to its shareholders. It could no longer act like a government organization. It entered a competitive marketplace.” (The Tragedy of the Mortgage Commons)
So essentially this created a monster! Fannie Mae prior to was a government institution and then became a private institution. The large institution is thrown into the lions den were it now has to ensure its shareholders capital gain which in turn forces them to acquire the capability of bending and bowing rules and regulations.
“At least in part, low interest rates were driven by the large current account deficit run by the USA, mirrored by countries like China avidly purchasing US Treasury bonds, but also the decision on the part of the Fed. to keep interest rates lower than in similar previous scenarios. The Fed. – and many of the world’s other leading central banks – continued to pump liquidity into credit markets to ensure credit would continue to flow at low rates of interest.
References: Bondarenko, P. Sub-prime mortgages. [online] Encyclopedia Britannica. Available at: http://www.britannica.com/ Hoskins, S., Jones, K. and Weiss, N. An Overview of the Housing Finance System in the United States. [online] CRS Report for Congress. Available at: http://fas.org/sgp/crs/misc/R42995.pdf Jaffee, D. The U.S. Subprime Mortgage Crisis: Issues Raised and Lessons Learned. [online] World Bank. Available at: http://www-wds.worldbank.org/external/default/WDSContentServer/WDSP/IB/2010/12/01/000333038_20101201234552/Rendered/PDF/577270NWP0Box353766B01PUBLIC10gcwp028web.pdf Marshall, J. The financial crisis in the US: key events, causes and responses. [online] HOUSE OF COMMONS LIBRARY. Available at: http://www.voltairenet.org/IMG/pdf/US_Financial_Crisis.pdf Peppercorn, I. The Tragedy of the Mortgage Commons. [online] Available at: worldbank.org. http://siteresources.worldbank.org/EXTFINANCIALSECTOR/Resources/282884-1239831335682/6028531-1239831365859/Peppercorn_TragedyoftheMortgageCommons.pdf Investopedia, (2014). Investopedia - Educating the world about finance. [online] Available at: http://www.investopedia.com