1 / 34

The Mortgage Crisis

Explore the causes and consequences of the mortgage crisis, from historical banking regulations to the subprime problem and deregulation. Understand the impact on the housing market, stock market, and job sector, with a comparison of recovery efforts in the US and other industrialized democracies. Discover different policy preferences and interpretations by various ideologies.

margretm
Download Presentation

The Mortgage Crisis

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. The Mortgage Crisis • PLS 480 Greed and Need • Dr. Emerson

  2. Sub Prime Problem • Delinquency rate 2 tenths of 1 % in 1979 • Today 2% (10 times higher) • Moyer’s Report http://www.pbs.org/moyers/journal/07182008/watch.html

  3. Context: Regulate or Deregulate • Constitution requires Congress regulate banks • Congress leaves regulation to States. • In 1913 FED authorized by Congress.

  4. Little Regulation Until New Deal • Unregulated stock market • Bank’s heavily invested in stocks • Deposits not insured

  5. Regulation • Glass Steagall Act • FDIC • Security & Exchange Commission • Freddie Mac/ Fannie Mae • HUD in 1960s

  6. Deregulation • Deregulation of S&Ls • No regulation of “derivatives” • Mortgages may be sold in fractions.

  7. Deregulation Continues • Savings/Loan Scandal • Congress repeals Glass Steagall Act in 1999.

  8. Federal Reserve Bank Policies • Low interest rates • Sub primes unregulated • No regulation of ‘innovative financing’ • No action regarding defaults

  9. What is market response? • Over price houses • Piggy back sub primes with regulated ‘primes’ • Little or no documentation of house/buyer

  10. GAO Report • No piggyback and documentation0% defaults • Piggyback OR little documentation 25-31% • Piggyback AND no documentation = 60%

  11. Why No Demands by Lenders? • Don’t know- ‘decoupling’ • If fail then resell at higher price • Loan is asset not borrower’s capacity to repay

  12. Evidence • Mortgage type and loss to homeowner and investor (Mortgage Banker Association) • Spillover of Mortgage Subprime to Prime trends (First American Loan Performance) • Stock Market Performance (Dow Jones Industrial Average) • Jobs (Bureau of Labor Statistics) • Recover of US (OECD)

  13. Foreclosures By Mortgage Type • Which type serves mortgage buyer AND homeowner? • Difference between red bar, green and yellow?

  14. Relationship of Primeto Sub-prime • Spillover of subprime default on prime. • Top line =subs but bottom line =primes

  15. Stock Market Learning Curve • Dips and peaks in stock market performance 2000- July 2009 • Prior dip July2003. Why?

  16. JOBS • Impact of policies on jobs(Bureau of Labor Statistics)

  17. Recovery Comparison • US System Recovery versus other Industrialized Democracies • Red line US vs. France, Germany and Japan(OECD)

  18. Break • Be back in 10 minutes for the analysis

  19. Finish this lecture: (7 groups) • Dem. Capitalist –explain • Dem. Capitalist –policy opt. • Dem. Socialist—explain • Dem. Socialist – policy opt. • Conservatives interpretation • Liberal interpretation • Madison interpretation/options

  20. Democratic Capitalists Explain • Democratic Capitalist explain evidence ---

  21. Democratic Capitalists • Future Policy Preference • Reasoning

  22. Democratic Socialist • Democratic Capitalist explain evidence ---

  23. Democratic Socialist • Future Policy Preference • Reasoning

  24. Conservative • Interpretation of Evidence and Meaning

  25. Liberal • Interpretation

  26. Madison Model • Interpretation/Explanation • Policy Options

  27. Conclusion • Justice is the end of government. It is the end [purpose] of civil society. It ever has and ever will be pursued until liberty is lost.. Madison, FP 51

  28. 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.

  29. Citations • Jost, Kenneth (2008). Financial Crisis. CQ Researcher 18(18), 409-422 • Phillips, Kevin (2002). Wealth and Democracy. New York: Random House. • Reynolds, Maura. (2008). Mortgages: Loan troubles hit new heights: foreclosure rate climbs to 2% for the 4th quarter. Home equity drop. Los Angeles Times. C-1.

  30. Q and A

  31. Postscript • Define issue • Use Library Resources, no Wikipedia(https://blackboard.csupomona.edu/webapps/login/) • See http://www.csupomona.edu/~library/databases/politicalscience.html

  32. Postscript (cont.) • Use correct APA citations. See: http://owl.english.purdue.edu/owl/resource/560/01/ • Looking for: timely, data (e.g. GAO), both sides of issue. NOT http://www.hillbillyreport.com/blog/bear_stearns//

  33. Postscript (cont.) • Analysis: Freedom, Liberty, Reason and Justice • Conclusions and Opposition argument • Power Point: Common Errors (http://www.youtube.com/watch?v=HLpjrHzgSRM)versus http://www.youtube.com/watch?v=vXFi7AdhhGk&feature=related (good example)

  34. Sub-prime mortgages The end

More Related