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The Rise and Fall of U.S. Mortgage and Credit Markets

Demystifying the Mortgage Meltdown: What It Means for Main Street, Wall Street and the U.S. Financial System

Flash back to the heady days of the housing boom: Ads for exotic mortgage products promised easy access to the American Dream — with no money down. Feeling flush, millions of consumers snapped up their first homes, traded up to larger houses or refinanced to cash out their newfound equity.

But prices were soaring well beyond their historic relationship with incomes in the hottest markets. Few people asked hard questions as underwriting standards grew increasingly lax. And almost no one predicted how much pain was in store when skyrocketing home prices finally came back to earth.

Problems that started in the subprime mortgage market quickly snowballed, and today we find ourselves in the eye of a financial storm. Home foreclosures are at record levels, and because risk was bundled into complex securities and passed along to investors, Wall Street is now confronting an ugly mess on its balance sheets. Staggering losses have toppled some of the biggest names in global finance.

When will the turmoil end? What will be the ultimate cost to taxpayers? Who's at fault? Where were the regulators? How can we restore trust in America's capital markets? How can we prevent this from happening again?

Milken Institute economists Glenn Yago and James R. Barth tackled these complex and timely issues recently at a forum offering data-driven analysis ranging from the origins of the crisis to possible regulatory solutions.

Glenn Yago is Director of Capital Studies at the Milken Institute and a leading authority on financial innovations, financial institutions, capital markets and public policy. James R. Barth is the Lowder Eminent Scholar in Finance at Auburn University and a Senior Fellow at the Milken Institute. He is also the author of The Great Savings and Loan Debacle and Rethinking Bank Regulation: Till Angels Govern.

The Milken Institute is an independent, nonpartisan economic think tank whose mission is to improve the lives and economic conditions of diverse populations around the world.

For information on their research please visit: www.milkeninstitute.org/research or questions, call 310-570-4605.


 








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