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Moral hazard involves a context where decision-makers engage in behaviors that prioritize self-interest while allowing the associated risk to be primarily borne by others. Such decision making can lead to catastrophic consequences, as seen in the 2008 global financial crisis after hedge fund managers indiscriminately invested their clients' money in subprime mortgages. This research examines which decision-makers are most likely to engage in moral hazard decision making and the psychological mechanism driving this behavior. Drawing on the dual model of social influence, we posit that individuals associated with dominance, but not prestige, will engage in greater moral hazard behaviors. We further contend that these behaviors are driven by dominant decision-makers' enhanced focus on end goals (outcomes) rather than the means (process) that they use to pursue such goals. We find support for our hypotheses across 13 studies (NObservations = 26,880; of which eight were preregistered and six studies are reported in the Supplemental Materials), using both correlational and experimental designs. Additionally, we vary the moral hazard context (e.g., a financial setting, a health and safety issue, etc.) and capture both behavioral intentions and actual behaviors, while also ruling out several alternative explanations. These findings demonstrate that dominant decision-makers engage in moral hazard behaviors because of their tendency to prioritize outcomes over processes. [ABSTRACT FROM AUTHOR]

The article presents a dossier on the symptoms of the crisis in contemporary Spanish novels. It mentions that the financial crisis in Europe began with the collapse of the American bank Lehman Brothers in 2008, but it was already being announced in the United States due to subprime mortgages and the inability of many citizens to pay their mortgages and loans. In Spain, the crisis is related to the real estate bubble and the granting of loans without guarantees by banking entities. The crisis affects the banking sector and has repercussions in the labor market, causing layoffs, an increase in unemployment, and a drastic decrease in consumption. [Extracted from the article]

In 2009, the Federal Reserve subjected nonbank mortgage-originating subsidiaries of bank holding companies (BHCs), but not independent nonbank (INB) mortgage originators, to consumer compliance supervision. We examine the effects of this regulatory change on the pricing and performance of nonbank originations using a sample of conventional, first-lien, amortizing mortgages originated between 2000 and 2015. We find that subsidiary nonbank (SNB) loans, which had a higher probability of default than INB mortgages prior to the policy change, had a lower probability of default following the change. In addition, we identify small but statistically significant decreases in loan interest rates and loan-to-value ratios for SNB mortgages relative to INB mortgages. When we split our sample into prime and subprime mortgages, we find those effects hold for prime mortgages. For subprime mortgages, after the policy change SNB originations had higher interest rates and lower LTV ratios than INB mortgages, with only weakly significant differences in probabilities of default. The findings are robust to several potential confounding effects, including those due to firm entries and exits. Our findings are consistent with BHCs reducing risk shifting in mortgage lending across subsidiaries following their heightened regulatory scrutiny. [ABSTRACT FROM AUTHOR]

The financial crisis caused by the subprime mortgage crisis in the United States in 2006 has deeply plunged many Western capitalist countries into multiple political, economic and social crises. This has forced many financial institutions in developed countries to redistribute their assets to strengthen the stability of financial institutions, forcing many Europeans and Americans to return funds to their own countries. As a result, the domestic currency depreciated, and the economic growth slowed down or even went into recession. As an emerging economy, China has been faced with both opportunities and challenges. The financial market has long been regarded as the "barometer" of the national economy, so the deepening relationship, such as the research and cooperation between the financial markets in Hong Kong and the Mainland, can certainly improve the international financial status of both sides. It also promotes the process of building a fair, orderly and inclusive new international order. This paper systematically introduces the political and financial relations between Hong Kong and the Mainland, focusing on the relationships between Shanghai-Hong Kong and Guangdong-Hong Kong financial centers and advocating some suggestions on how to balance the relationship between the three financial centers while speeding up the construction of the national financial center. Using a variety of financial theories and statistics of Hang Seng AH Share Premium Index and Centaline City Leading Index, etc., this paper reaches the conclusion that the financial relationships between the Mainland and Hong Kong have always been close, while the differences between the two markets are more pronounced, steps can definitely be taken to benefit both of them (Zhu, 2013). [ABSTRACT FROM AUTHOR]

A retrospective view of the "subprime mortgage" crisis enables us to assess the actions of banks, both those prompting the genesis of the crisis and those resulting from subsequent actions aimed at resolving it and rebooting the economy. However, given the fact that the crisis is framed by the sudden appearance of another outside the established parameters of the post-recession boom, we are able to analyze whether the actions adopted by regulators were as effective as initially thought. Solvency and profitability are two of the most important factors that reveals the quality of banking management. From the numerous parameters described in the literature reviewed, fourth banking ratios were selected to evaluate the relationship between solvency and profitability from 2011 to 2021, a period between the two economic-financial crises of the 21st century. Using a representative sample of Spanish banking and applying a descriptive and explicative methodology, the results show a complementarity between solvency and profitability. This evidence provides to bank managers more knowledge about the behavior of banking during crisis periods. [ABSTRACT FROM AUTHOR]

International economic exchanges have become more frequent, and the degree of the mutual influences of investor sentiment in the stock markets of various countries has been increasing. Therefore, the study of cross‐country spillover effects of investor sentiment is of great relevance to the analysis of financial market linkage and the diffusion mechanisms between countries. This study examined the directions and levels of investor sentiment spillovers in 10 countries from 2003 to 2020 by constructing aggregate and directional spillover indices and analyzing the static and dynamic characteristics as well as the network structures of the spillover effects. The results revealed that (1) investor sentiment had significant cross‐country spillover effects and their intensities were time‐varied, with the total sentiment spillover index rising sharply in response to extreme events, such as the subprime mortgage crisis, the European sovereign debt crisis, the United Kingdom's (U.K.) Brexit policy, and the coronavirus pandemic. (2) The spillover effects were impacted by the level of economic and financial development. Overall, developed countries had higher levels of spillover than did developing countries. (3) Countries that were highly correlated with extreme events had stronger spillover effects. For example, the United States and the U.K. were the main net "exporters" of sentiment during the subprime crisis, and Germany became the top "exporter" during the European sovereign debt crisis. Our findings have important implications for policymakers who aim to understand capital markets correlations and promote regulatory coordination across countries. [ABSTRACT FROM AUTHOR]

We provide novel estimates of the location, timing, magnitude, and determinants of the start of the previous U.S. housing boom. The housing cycle cannot be interpreted as a single, national event, as different markets began to boom across a decade-long period, some of them multiple times. A fundamental factor, income of prospective buyers, can account for half of the initial jump in price growth, while expansion of purchases by underrepresented minorities cannot. The start of the boom also was financed conventionally, not by subprime mortgages. The latter's share did rise sharply over time, but only after a multiyear lag. [ABSTRACT FROM AUTHOR]

Access to safe and affordable financial services is essential to the economic well‐being of individual households and entire urban neighborhoods. However, prior research raises concerns about spatial inequities in the distribution of brick‐and‐mortar financial services offerings—either mainstream financial institutions or alternative 'fringe' financial service providers—and the resulting implications for financial inclusion and social justice. This study uses a novel method to identify fringe financial ecologies that captures the recent tandem processes of abandonment by mainstream financial institutions and the proliferation of alternative financial service providers. We explore how fringe financial ecologies potentially overlap existing inequalities of race, class and subprime mortgage lending in two US metropolitan areas, Los Angeles, California, and Miami, Florida. Our results raise concerns that communities of color, low‐income neighborhoods and otherwise vulnerable segments of the population are disproportionately at risk of both financial exclusion and predatory targeting. We find that fringe financial ecologies are associated with a high prevalence of subprime mortgage lending. The results advance an understanding of financial ecologies that raises awareness about place‐based financial exclusion as a form of systemic racism in the broader context of the national reckoning with racial justice in the US. [ABSTRACT FROM AUTHOR]

The 2008 sub-prime mortgage crisis in the United States brought many financial institutions to the brink of bankruptcy. Securities firms were not immune to such issues, given their prominence in the financial market. Consequently, evaluating the performance of securities companies' post-recession is important when determining how to confront market-shaking macroeconomic problems. Consequently, this paper employs a non-radial model of data envelopment analysis (DEA) to measure the performance of revival on Taiwan's securities industry. The research findings suggest that Tachan Securities (TCS) outperformed its peers in the operational period immediately after the global financial crisis, while Capital Securities (CAPITAL) is the best performer in the profit-making period. This paper applies the Boston Consulting Group (BCG) Matrix to analyze strategic positioning and trajectory on the basis of the efficiency value of the two-stage of non-radial DEA model. In order to validate any variances between the efficiencies of different stages after the global financial crisis, this paper conducts non-parametric statistical analysis to examine the variances in the efficiency values of the single-stage and the two-stage model. Finally, the purpose is to understand the impact of the post-crisis environmental variables on the efficiency of the securities industry. The empirical findings can serve as a reference for industry management on the assessment of operating performances and profitability by the characteristic of radial efficiency. Decision-makers in the industry may also refer to the findings as a benchmarking tool for the evaluation of business performance after the global financial crisis. [ABSTRACT FROM AUTHOR]

In this paper, the effects of United States (US) policy actions on mortgage-backed security and mortgage loan spreads are measured, by using data before, during, and after the US subprime mortgage crisis. We study the effects of the following policy actions: (i) the placement of Fannie Mae and Freddie Mac into US Government conservatorship; (ii) the US Federal Reserve quantitative easing (QE) programs. We provide the following contributions to the literature: (i) for a robust measurement of policy effects, a new multi-equation score-driven t-QVARMA (quasi-vector autoregressive moving average) model is used. (ii) In addition to the measurement of the effects of QE, the effects of government conservatorship are also measured in this paper. (iii) Furthermore, the data period of the relevant literature is extended to the period of June 1998 to March 2020. [ABSTRACT FROM AUTHOR]

We study patterns of spatial autocorrelations of four customary performance measures (return on asset, return on equity, net interest margin, and loan loss reserves to total assets) among 49 commercial banks spread in the continental US from the first quarter of 2000 until the fourth quarter of 2010, before and after the subprime mortgage crisis. We use Moran's I, Geary's C, and Conley's one-metric and two-metric spatial autocorrelation methodologies and discover mostly positive (negative) spatial autocorrelations before (during and after) the US subprime mortgage crisis. We also identify the unique influences of size and risk management practices in these commercial banks on the spatial autocorrelations within the two tested periods. Our findings suggest that among many US commercial banks, unifying economic features were more dominant before the crisis, but they were gradually replaced with dividing economic elements during and after this major financial calamity. Our robust evidence aim to highlight the influence of physical distances among commercial banks on their routine operations. [ABSTRACT FROM AUTHOR]

While the current housing market remains relatively strong, with housing prices setting records, concerns are growing of a potential housing bubble similar to that of 2007–2009; this paper compares the current housing market environment with that of 2007–2009 and concludes that the many of the factors that caused the 2007–2009 crisis do not exist today. Factors associated with subprime mortgages, poor and non-existent underwriting loan requirements, weak regulatory oversight, exaggerated credit ratings, under-capitalization in the banking sector and excessive speculative activity in the housing market have been addressed by regulation, which is aimed at preventing another financial crisis similar to 2007–2009. Equally important, major fundamental factors affecting real estate valuation are providing support for the housing market and housing prices; these factors are impacting both the demand and supply side of the housing market. The factors include the lack of inventories of homes available for sale, the underproduction of housing, decreased household mobility limiting supply and the increase in housing demand from millennials and institutional investors; these fundamental factors were not evident during the 2007–2009 period. Despite a number of indicators signaling a potential topping out and overvaluation of housing prices, the authors conclude that the fundamental factors will limit the extent that the housing market weakens over the next few years. [ABSTRACT FROM AUTHOR]

The paper analyses the modifications in the Spanish legal regime for fresh start for natural debtors resulting from the implementation of the European Directive on preventive restructuring frameworks. [ABSTRACT FROM AUTHOR]

This paper explores the interaction between Chinese courts and regulators in dealing with promised return trusts, and shows that regulatory concern has been the main driver of the doctrinal modification over the past two decades. Until very recently, the investment trust sector was characterised by the offering of direct and indirect promised return trusts to investors. The most prominent feature of a promised return trust is that the beneficiary avoids the risks of both investment failure and the trustee's insolvency. Chinese courts initially adopted a position of recognising the validity of both the trust and the promised return clause to facilitate governmental finance after the subprime mortgage crisis, yet later changed to one recognising the validity of the trust while negating direct promised return clauses only, as provided by the milestone Minutes issued by the Chinese Supreme Court in 2019. Both the pre-2019 and post-2019 attitudes of Chinese courts towards promised return trusts significantly deviate from two English trust law doctrines, namely, the mutual exclusivity of trust and debt, and beneficiaries being not personally liable to each other. The underlying reason why such divergence occurs is that the Chinese trust law doctrine in this regard has been reshaped in the interest of financial regulation in order to reduce systemic risk in shadow banking. [ABSTRACT FROM AUTHOR]

We conduct comprehensive analyses on whether and how the judicial foreclosure procedure helps subprime mortgage borrowers to reinstate their delinquent loans outside foreclosure liquidation. Even though the transition rates of various exit types are all higher in non‐judicial states, we argue such higher rates can be mechanically driven by the faster shrinking pool of delinquent mortgages in non‐judicial states over time. Based on the cumulative proportions of various exit types during a period of up to 5 years post the mortgage first become 90 days past due, we find that judicial states offer more opportunities for delinquent borrowers to reinstate their loans outside foreclosure liquidation, especially during a housing market downturn. Cures, modifications, and paid‐offs were all important alternative ways to resolve serious delinquencies during 2007–2008. After modifications became widely available in 2009, loan modifications became the most important alternative for subprime borrowers to reinstate their delinquent mortgages outside foreclosure liquidation. The lion's share of the judicial foreclosure benefit shows up after the start of the foreclosure process. [ABSTRACT FROM AUTHOR]

This paper exploits the federal preemption of national banks in 2004 from local laws against predatory lending to gauge the effect of the supply of credit on the real economy. First, the preemption regulation resulted in an 11% increase in annual lending in the 2004-2006 period, which is associated with a 3.3% rise in annual house price growth rate and a 2.2% expansion of employment in nontradable sectors. This was followed by a sharp decline in subsequent years. Furthermore, we show that the increase in the supply of credit reduced delinquencies during boom years, but increased them in bust years. [ABSTRACT FROM AUTHOR]

Recent empirical studies have shown that during the financial crisis of 2007–2008, banks that were more heavily exposed to liquidity risk contracted their supply of credit more sharply. I contribute to the identification of this effect by relying on the use of micro-level data on U.S. mortgage loan applications, which allows me to identify liquidity risk as an important determinant of the contraction of credit in the mortgage market but as separate from the precipitous fall in credit demand, disruptions in the securitization and subprime markets, shifts in asset risk, and changing risk aversion among loan officers. [ABSTRACT FROM PUBLISHER]

Today, black-owned banks are important financial resources challenging economic exclusion. Nevertheless, they do not associate strongly with building black wealth. Some scholars argue this signals black-owned banks are ornamental, or ineffective responses to legacies of economic exclusion in black segregated neighborhoods. To engage these critiques, I draw on the dialectical theoretical frames of cultural assets and structural deficits to examine the effectiveness of black-owned banks during the subprime lending boom—a period when bank practices exploiting a history of economic exclusion in black segregated neighborhoods intensify. Specifically, I analyze administrative data from the Federal Deposit Insurance Corporation (FDIC) and the Home Mortgage Disclosure Act (HMDA) to assess whether black-owned banks associate with access to mortgage credit when the subprime lending boom peaks in 2006. Using propensity score matching with inverse probability weighting, I find black-owned banks do not associate with mortgage originations in 2006; but neighborhoods with black-owned banks receive fewer subprime mortgage loans, compared to matched ones without them. As such, black-owned banks appear to effectively shield black segregated neighborhoods from the time period's predation. Overall, findings imply black-owned banks support protective credit markets during periods of intensifying economic exclusion and exploitation. [ABSTRACT FROM AUTHOR]

We analyse spatial dependence between the risks of stock markets. An alternative definition of neighbour is used and is based on a proposed exogenous criterion obtained with a dynamic Google Trends Uncertainty Index (GTUI) designed specifically for this analysis. We show the impact of systemic risk on spatial dependence related to the most significant financial crises from 2005: the Lehman Brothers bankruptcy, the sub-prime mortgage crisis, the European debt crisis, Brexit and the COVID-19 pandemic, which also affected the financial markets. The risks are measured using the monthly variance or volatility and the monthly Value-at-Risk (VaR) of the filtered losses associated with the analysed indices. Given that the analysed risk measures follow non-normal distributions and the number of neighbours changes over time, we carry out a simulation study to check how these characteristics affect the results of global and local inference using Moran's I statistic. Lastly, we analyse the global spatial dependence between the risks of 46 stock markets and we study the local spatial dependence for 10 benchmark stock markets worldwide. [ABSTRACT FROM AUTHOR]

The paper analyses the evolution of the use of subprime loans and the availability of credit to different classes of borrowers. It examines the time period from 1980 to 2008 as a whole, as well as the changes in credit profiles in five sub-periods. By tracking borrower characteristics and their impact on foreclosure probability over time it determines what went wrong and how policy can be developed that prevents a repeat of the housing crisis that began at the end of 2006. The findings suggest that over the sample period debt to income, FICO score and loan-to-value are significant determinants for the probability of foreclosure and their importance increases over time. Furthermore, some borrowers are three times more likely to default on a loan originated between 2001 and 2006 than a loan originated between 1980 and 1994 indicating a distinct difference in lending terms and the general lending environment over time.

The article focuses on the examination of the proximate cause standard under the Fair Housing Act (FHA) through the City of Oakland v. Wells Fargo Co. case, in which Oakland accuses Wells Fargo of engaging in discriminatory practices leading to foreclosures and reduced property values. The article discusses the history of the FHA, the 2008 housing market crash and subsequent recession, and the arguments presented in the case regarding proximate cause and damages.

In this article, the researcher concluded with absolute certainty through the overwhelming evidence from data analysis. The Global Financial Crisis, the worldwide economic collapse, and the Great Recession were not caused by subprime mortgage lending. The Global Financial Crisis of 2007 and 2008 was caused by the destruction of the subprime mortgage industry. The politicization of misinformation gave investors shorting mortgage-back securities an opportunity to take advantage of the mood of the country resulting from corporate mistrust caused by the early 2000s corporate reporting. Evidence from data analysis in the current study suggested subprime mortgage lending did not cause an increase in the national mortgage delinquency rate. The narrative, individuals purchased homes they could not afford preceding the Global Financial Crisis was completely debunked based on the evidence presented in the current study. The evidence suggested subprime lending resulted in significantly lower mortgage delinquency rates preceding the financial crisis. The end of subprime lending resulted in skyrocketing national mortgage delinquency rates years after the subprime lending industry in the United States had been destroyed by misinformation. Mistakes by policymakers in the United States government significantly worsened the financial crisis leading to an acceleration of mortgage delinquencies across the country. The consensus among the political establishment, the media, big tech, and academia failed to raise questions regarding the false narrative of unscrupulous lending and the false conclusion of a real estate bubble. The evidence from data analysis suggested the entire narrative about subprime mortgage lending and the real estate bubble was misinformation used for politicization in the 2008 United States Presidential Election similar to the politicization of COVID-19 policies in the 2020 United States Presidential Election. The continued rapid increase in home prices around the world today, is a direct result of the misinformation that caused the Global Financial Crisis, the worldwide economic collapse, and the Great Recession. Moderate-income families around the world today are at risk of being priced out of the housing market as increased home prices lead to the rapid increase in rental housing. Higher education has used the misinformation that caused the Global Financial Crisis as justification to develop unethical business ethics and organizational behavior curriculum focused corporate social responsibility (CRS) based on the false narrative creating a negative image of capitalism for students based on a false narrative. Stockholder profits have become secondary to corporate political activism, which has been developed largely based on the misinformation that caused the Global Financial Crisis. Mainstream media and big-tech continued misinformation have become the most significant risk facing the global economy today, which must be addressed to avoid another global economic crisis. [ABSTRACT FROM AUTHOR]

This paper highlights the importance of middle-class and high-FICO borrowers for the mortgage crisis. Contrary to popular belief, which focuses on subprime and poor borrowers, we show that mortgage originations increased for borrowers across all income levels and FICO scores. The relation between mortgage growth and income growth at the individual level remained positive throughout the pre-2007 period. Finally, middle-income, high-income, and prime borrowers all sharply increased their share of delinquencies in the crisis. These results are consistent with a demand-side view, where homebuyers and lenders bought into increasing house values and borrowers defaulted after prices dropped. [ABSTRACT FROM AUTHOR]

This study assessed the failure of the Lehman brothers. The aim was to evaluate the causes of Lehman's bankruptcy and determine the strategies that could prevent bankruptcy in the banking sector going forward. Findings indicated a close relationship between regulations and the actions of management. In particular, the failure of Lehman showed that regulation and supervision are critical to the success and continuity of the banking sector. The analysis also showed that the demise of Lehman was a result of complex factors. These included unethical management practices, deregulation, excessive risk-taking, poor corporate governance structure, fraud, and lack of a robust ethics code. [ABSTRACT FROM AUTHOR]

Prior to the subprime crisis, mortgage brokers charged higher fees for subprime loans that turned out to be riskier ex post, even when conditioning on other risk characteristics. Borrowers who paid higher conditional fees were inherently more risky, not just because they paid higher fees. The association between conditional fees and delinquency risk was stronger for purchase rather than refinance loans, and for loans originated by brokers who had less frequent interactions with the lender. This work sheds light on how regulation that limits origination charges to a fixed fraction of the loan amount may impact mortgage lending. [ABSTRACT FROM AUTHOR]

We analyze the spatial default dependence between pairs of nonconforming securitized mortgages, originated in Los Angeles between 2000 and 2011 and clustered by zip code. Our approach allows us to estimate the range and shape of the spatial dependence function, which relates zip-code center-to-center distance between mortgages to the dependence parameter of a number of different copulas. We find significant evidence for the presence of spatial dependence, which decays to zero within 40km and can be well characterized by a squared exponential function, a special case of the Matérn spatial correlation function. [ABSTRACT FROM AUTHOR]

Using a sample of 30‐year fixed‐rate subprime mortgage loans, this article empirically examines whether gender inequality exists in the mortgage market, specifically whether a borrower's gender affects the loan contract rate charged, beyond the impact of the borrower's probability of default and prepayment. The results, based on a competing‐risks loan hazard model, reveal that borrowers of different genders have different loan termination patterns. After controlling for the probability of a borrower defaulting or prepaying, female borrowers pay higher contract rates in the subprime mortgage market over the study period. [ABSTRACT FROM AUTHOR]

This paper examines the liquidity transmission across the interbank money market by investigating four liquidity measurements. We detect an empirical evidence of the increase in conditional correlation across different liquidity channels during the subprime mortgage crisis. Two structural breaks are observed, and the break dates correspond to the critical events that happened at the beginning of the subprime mortgage crisis. Furthermore, two out of three significant pairwise liquidity transmissions involved the TED liquidity spread. [ABSTRACT FROM AUTHOR]

In 2007, approximately 20% of U.S. homeowners with a subprime mortgage loan experienced mortgage default, which resulted in the bank foreclosing on their home. The purpose of this study is to explore strategies that bank managers and lenders used to reduce mortgage default rates. The conceptual framework for this study included elements from Berle and Means' agency theory and Donaldson's stewardship theory. Potential homeowners may experience lower mortgage defaults if they have a clear and concise communication, better understanding of the various types of mortgage loans, especially subprime loans, and the review of the mortgage lending process. This study also provides strategies that will enable both lenders and borrowers to minimize mortgage default rates and to provide information to future homeowners seeking to obtain a mortgage loan. [ABSTRACT FROM AUTHOR]

In mortgage debt contracts, real property serves as collateral and the terms of mortgage financing are largely conditional on the certification of collateral value by appraisers. However, overstatement of collateral value is common in the appraisal industry, causing troubles in the mortgage market as observed in the recent crisis. In this paper, we examine whether competition in the appraisal industry affects appraisal bias. We model appraiser behavior given a loan officer's preference for favorable appraisals (i.e. appraisal values at least as high as the transaction prices). As appraisers cater to loan officers to increase their probability of winning future business, our model predicts more inflated appraisals in more competitive markets. We confirm this prediction using a sample of purchase mortgages originated between 2003-2006 by a large subprime mortgage lender. Our results show that a one standard deviation increase in appraiser competition, measured at the MSA/year level, is associated with a 1.6–3.7 percentage point increase in the share of at-price appraisals. Furthermore, the effect is stronger in areas experiencing high house price growth. [ABSTRACT FROM AUTHOR]

The Great Recession has provided an important intellectual challenge to both post-Keynesian and mainstream economists. In this article we survey some post-Keynesian views on household debt accumulation and the Great Recession of the United States, as well as the Atif Mian and Amir Sufi's studies, perhaps the most influential and empirically-oriented studies of mainstream economics. We identify and distinguish their policy perspectives, and highlight commonalities and differences between them. By examining both post-Keynesian and Mian and Sufi's views together, this paper emphasizes that, although there are clear differences between them, a careful examination reveals valuable complementarity which yields a better understanding of household debt accumulation and the Great Recession of the United States. JEL classification : E21, E32, E52, E62 [ABSTRACT FROM AUTHOR]

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Except for the Chilean case, competitive pricing behaviors by commercial banks in the U.S. and other Latin American economies in the post-U.S. subprime mortgage crisis were documented. The findings for the U.S. and Mexican economies make significant contributions to the literature. The investigation also found bidirectional Granger causality between the lending rate and the Central Bank's policy related rate and the presence of the GARCH (r, s)-M effects on the intermediation premia and their variances in each of these economies. These findings suggest that monetary policymakers intervene more frequently and by making small policy adjustments to achieve their macroeconomic objectives. [ABSTRACT FROM AUTHOR]

During the recent financial crisis, ABX.HE index credit default swaps (CDS) on baskets of mortgage-backed securities were a benchmark widely used by financial institutions to mark their subprime mortgage portfolios to market. However, we find that prices for the AAA ABX.HE index CDS during the crisis were inconsistent with any reasonable assumption for mortgage default rates, and that these price changes are only weakly correlated with observed changes in the credit performance of the underlying loans in the index, casting serious doubt on the suitability of these CDS as valuation benchmarks. We also find that the AAA ABX.HE index CDS price changes are related to short-sale activity for publicly traded investment banks with significant mortgage market exposure. This suggests that capital constraints, limiting the supply of mortgage-bond insurance, may be playing a role here similar to that identified by Froot (2001) in the market for catastrophe insurance. [ABSTRACT FROM PUBLISHER]

An originate-to-distribute (OTD) model of lending, where the originator of a loan sells it to various third parties, was a popular method of mortgage lending before the onset of the subprime mortgage crisis. We show that banks with high involvement in the OTD market during the pre-crisis period originated excessively poor-quality mortgages. This result is not explained away by differences in observable borrower quality, geographical location of the property, or the cost of capital of high- and low-OTD banks. Instead, our evidence supports the view that the originating banks did not expend resources in screening their borrowers. The effect of OTD lending on poor mortgage quality is stronger for capital-constrained banks. Overall, we provide evidence that lack of screening incentives coupled with leverage-induced risk-taking behavior significantly contributed to the current subprime mortgage crisis. [ABSTRACT FROM PUBLISHER]

The massive losses that banks incurred with the meltdown of the subprime mortgage market have raised concerns about their ability to continue lending to corporations. We investigate these concerns. We find that firms paid higher loan spreads during the subprime crisis. Importantly, the increase in loan spreads was higher for firms that borrowed from banks that incurred larger losses. These results hold after we control for firm-, bank-, and loan-specific factors, and account for endogeneity of bank losses. These findings, together with our evidence that borrowers took out smaller loans during the crisis when they borrowed from banks that incurred larger losses, lend support to the concerns about bank lending following their subprime losses. [ABSTRACT FROM PUBLISHER]

Using loan-level data, we analyze the quality of subprime mortgage loans by adjusting their performance for differences in borrower characteristics, loan characteristics, and macroeconomic conditions. We find that the quality of loans deteriorated for six consecutive years before the crisis and that securitizers were, to some extent, aware of it. We provide evidence that the rise and fall of the subprime mortgage market follows a classic lending boom-bust scenario, in which unsustainable growth leads to the collapse of the market. Problems could have been detected long before the crisis, but they were masked by high house price appreciation between 2003 and 2005. [ABSTRACT FROM PUBLISHER]

We characterize the optimal mortgage contract in a continuous-time setting with stochastic growth in house price and income, costly foreclosure, and a risky borrower who requires incentives to repay his debt. We show that many features of subprime loans can be consistent with properties of the optimal contract and that, when house prices decline, mortgage modification can create value for borrowers and lenders. Our model provides a number of empirical predictions that relate the features of mortgage contracts originated in a housing boom and the extent of their modification in a slump to location and borrowers' characteristics. [ABSTRACT FROM PUBLISHER]

I question Madansky's (2008) critique of stand-alone business history courses by arguing that the subprime mortgage crisis of 2007 and the financial panic of 2008 may not have occurred if business history was taught more widely and thoroughly in business and public policy schools. The current crisis is the seventh of its kind in U.S. history and occurred for the same reason, perverse incentives, as the first six. History can also illuminate the best way out of the crisis and reduce the likelihood of recurrence. [ABSTRACT FROM AUTHOR]