The Mortgage Crisis
Content
Sub-primes and the Credit Crisis
PLS/EC 480 Greed and Need Dr. Emerson
The Great Depression
Stock Market Crash Banks loose capital Decline in market activity Government inaction FDR and try anything approach
Regulation
FDIC Security & Exchange Commission Glass Steagall Freddie Mac/ Fannie Mae
Deregulation
Deregulation of thrifts [Savings and Loans] No regulation of “derivatives” Mortgages sold in fractions- precursor of CDO. Gramm Leach Bliley
Federal Reserve Bank Policies
Low interest Sub primes unregulated No action on defaults Fed vs. Congress
EVIDENCE: Sub Prime Problem
Delinquency rate is 2 tenths of 1 % in 1979 Today 2% (10 times higher): 2,820,000 households and rising.
Foreclosures and Sub Prime
Rates of loss by mortgage type.
Default Consequences
GAO report:
No
piggyback and documentation 0% OR little documentation 25-31% AND no documentation = 60%
Piggyback Piggyback
Evolution of Crisis
Rotten apple parallel Sub prime and impact on prime
Jobs in the aftermath
2009, 0% job growth
OECD
Rate of US recovery versus other industrial democratic countries.
Cost of gambling
The Credit Crisis by J. Jarvis
http://www.getrichslowly.org/blog/2009/02/25/the-credit-crisisvisualized/
Break
Be back in 10 minutes for the analysis
The Micro Economic and Political Consequences
Bill Moyer’s Report http://www.pbs.org/ moyers/journal/071 82008/watch.html
1930s SAME as today’s crisis
Unregulated market Commercial and high risk investments Worldwide crisis Downward spiraling Income disparities
Differences?
Starts as homeowner crisis US a global power US government reacts with TARP bailout FDIC protects depositors No tariffs OTHER
Inside the Meltdown:
Bush Administration, TARP 1 and Congress Matrix of Events –see web page
Suggested Reforms
Financial reporting No mart to marketing Accounting regulations No off shore companies Intelligible instruments Reinstate Glass Steagall Insurance reform Credit default swaps End “too big to fail”
JONCO and other reforms:
--In Dodd We Trust
http://www.thedailyshow.co m/watch/tue-march-162010/in-dodd-we-trust (Firefox)
National Responsibility
Federal Government
What should States do?
Citations
Alford, Rob (2003). What are the origins of Freddie Mac and Fannie Mae. Accessed August 28, 2008 at http://hnn.us/articles/1849.html.
Bitner, Richard (2008). Inside the Subprime Debacle. U.S. News and World Report. 145 (2) 12. GAO Report (2007) Briefing to the Committee on Financial Service, House of Representatives. GPO: Washington, D. C.
Citations
Jost, Kenneth (2008). Financial Crisis. CQ Researcher 18(18), 409-422
Phillips, Kevin (2002). Wealth and Democracy. New York: Random House. Stigliz, Joseph 2010. Freefall: America, free markets and the sinking of the world economy. New York: Norton Press.
Q and A
PLS/EC 480 Greed and Need Dr. Emerson
The Great Depression
Stock Market Crash Banks loose capital Decline in market activity Government inaction FDR and try anything approach
Regulation
FDIC Security & Exchange Commission Glass Steagall Freddie Mac/ Fannie Mae
Deregulation
Deregulation of thrifts [Savings and Loans] No regulation of “derivatives” Mortgages sold in fractions- precursor of CDO. Gramm Leach Bliley
Federal Reserve Bank Policies
Low interest Sub primes unregulated No action on defaults Fed vs. Congress
EVIDENCE: Sub Prime Problem
Delinquency rate is 2 tenths of 1 % in 1979 Today 2% (10 times higher): 2,820,000 households and rising.
Foreclosures and Sub Prime
Rates of loss by mortgage type.
Default Consequences
GAO report:
No
piggyback and documentation 0% OR little documentation 25-31% AND no documentation = 60%
Piggyback Piggyback
Evolution of Crisis
Rotten apple parallel Sub prime and impact on prime
Jobs in the aftermath
2009, 0% job growth
OECD
Rate of US recovery versus other industrial democratic countries.
Cost of gambling
The Credit Crisis by J. Jarvis
http://www.getrichslowly.org/blog/2009/02/25/the-credit-crisisvisualized/
Break
Be back in 10 minutes for the analysis
The Micro Economic and Political Consequences
Bill Moyer’s Report http://www.pbs.org/ moyers/journal/071 82008/watch.html
1930s SAME as today’s crisis
Unregulated market Commercial and high risk investments Worldwide crisis Downward spiraling Income disparities
Differences?
Starts as homeowner crisis US a global power US government reacts with TARP bailout FDIC protects depositors No tariffs OTHER
Inside the Meltdown:
Bush Administration, TARP 1 and Congress Matrix of Events –see web page
Suggested Reforms
Financial reporting No mart to marketing Accounting regulations No off shore companies Intelligible instruments Reinstate Glass Steagall Insurance reform Credit default swaps End “too big to fail”
JONCO and other reforms:
--In Dodd We Trust
http://www.thedailyshow.co m/watch/tue-march-162010/in-dodd-we-trust (Firefox)
National Responsibility
Federal Government
What should States do?
Citations
Alford, Rob (2003). What are the origins of Freddie Mac and Fannie Mae. Accessed August 28, 2008 at http://hnn.us/articles/1849.html.
Bitner, Richard (2008). Inside the Subprime Debacle. U.S. News and World Report. 145 (2) 12. GAO Report (2007) Briefing to the Committee on Financial Service, House of Representatives. GPO: Washington, D. C.
Citations
Jost, Kenneth (2008). Financial Crisis. CQ Researcher 18(18), 409-422
Phillips, Kevin (2002). Wealth and Democracy. New York: Random House. Stigliz, Joseph 2010. Freefall: America, free markets and the sinking of the world economy. New York: Norton Press.
Q and A
