Advanced Search
MyIDEAS: Login

subprime mortgage crisis, the

Contents:

Author Info

  • Christopher L. Foote
  • Paul S. Willen

Abstract

During the subprime mortgage crisis of 2007–2008, previously profitable loans to subprime borrowers turned sour and investments thought to be as safe as government debt sustained severe and unexpected losses. The crisis reconfigured the US financial services industry and helped spark the worst economic crisis since the 1930s. While the consequences of subprime losses for Wall Street are well understood, the reason that the crisis occurred is not. The fundamental outstanding question is why so many people made decisions that turned out to be so unprofitable. Millions of borrowers took out loans they could not repay. Thousands of lenders lent them money. And investors advanced billions of dollars, either to fund the firms involved in subprime lending, or to purchase the mortgage-backed securities that these firms created. This article outlines and evaluates two potential explanations for the subprime crisis. One is based on ‘insider/outsider' frictions in the subprime lending industry. The other interprets the crisis as the consequence of a classic asset bubble, which in this case occurred in the US housing market. The article concludes by discussing the implications of these explanations for policies designed to prevent financial crises in the future.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.dictionaryofeconomics.com/article?id=pde2011_S000547
Download Restriction: Access to full text is restricted to subscribers.

As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

Bibliographic Info

as in new window

This chapter was published in: Steven N. Durlauf & Lawrence E. Blume (ed.) , , pages , 2011, 2nd quarter update.

This item is provided by Palgrave Macmillan in its series The New Palgrave Dictionary of Economics with number v:5:year:2011:doi:3856.

Handle: RePEc:pal:dofeco:v:5:year:2011:doi:3856

Contact details of provider:
Web page: http://www.palgrave-journals.com/

Order Information:
Email:
Web: http://www.dictionaryofeconomics.com/help/faq#_Toc198623697

Related research

Keywords: bubble; default; foreclosure; insider/outsider theory; mortgage;

Find related papers by JEL classification:

References

No references listed on IDEAS
You can help add them by filling out this form.

Citations

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:pal:dofeco:v:5:year:2011:doi:3856. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Sheeja Sanoj).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.