Anatomy of a Financial Crisis: A Real Estate Bubble, Runaway Credit Markets, and Regulatory Failure

201 Pages·2010·1.22 MB·English

by  Marc Jarsulic

Anatomy of a Financial Crisis
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Anatomy of a Financial Crisis
A Real Estate Bubble, Runaway Credit
Markets, and Regulatory Failure
Marc Jarsulic
ANATOMY OF A FINANCIAL CRISIS
Copyright © Marc Jarsulic, 2010.
All rights reserved.
First published in 2010 by
PALGRAVE MACMILLAN®
in the United States—a division of St. Martin’s Press LLC,
175 Fifth Avenue, New York, NY 10010.
Where this book is distributed in the UK, Europe and the rest of the world,
this is by Palgrave Macmillan, a division of Macmillan Publishers Limited,
registered in England, company number 785998, of Houndmills,
Basingstoke, Hampshire RG21 6XS.
Palgrave Macmillan is the global academic imprint of the above companies
and has companies and representatives throughout the world.
Palgrave® and Macmillan® are registered trademarks in the United States,
the United Kingdom, Europe and other countries.
ISBN: 978–0–230–61568–7
Library of Congress Cataloging-in-Publication Data
Jarsulic, Marc.
Anatomy of a financial crisis : a real estate bubble, runaway credit
markets, and regulatory failure / Marc Jarsulic.
p. cm.
Includes index.
ISBN 978–0–230–61568–7
1. Financial crises—United States. 2. Bank loans—United States. 3. Real
property—Prices—United States. 4. United States—Economic
conditions—2001–2009. I. Title.
HB3722.J37 2010
330.973—dc22 2009035264
A catalogue record of the book is available from the British Library.
Design by Newgen Imaging Systems (P) Ltd., Chennai, India.
First edition: March 2010
10 9 8 7 6 5 4 3 2 1
Printed in the United States of America.
For Ellen, Laura, and Katherine
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C O N T E N T S
List of Figures ix
Acknowledgments xi
Introduction xiii
One The Building Blocks of the Financial Crisis 1
Two T he House Price Bubble Ends, the
Foreclosure Wave Begins 33
Three The Credit Bubble Bursts, the
Financial Crisis Begins 55
Four Who Caused This Disaster? 91
Five Implications and Solutions 125
Notes 157
Index 173
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L I S T O F F I G U R E S
Boxes
1.1 Residential Mortgage Securitization 19
1.2 Subprime Structured Finance CDOs 26
Figures
1.1 FICO score and sector: 2005 originations 4
1.2 Foreclosure rates 1998Q1-2009Q1 5
1.3 Mortgage originations by product (in billions
of dollars unless otherwise noted) 6
1.4 Subprime mortgage-backed security
composition: An analysis of private label
securitization data 10
1.5 Case-Shiller national home price index 13
1.6 Share of purchases financed by mortgage
equity rises with house prices 15
1.7 Top subprime mortgage originators 23
1.8 Top subprime mortgage-backed
securities issuers 24
1.9 Top Alt-A mortgage originators 25
2.1 New single-family homes for sale,
1963–2009 37
2.2 Existing single-family houses for sale,
1983–2009 37