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Creating Liquidity out of Spatial Fixity: The Secondary Circuit of Capital and the Subprime Mortgage Crisis

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  • KEVIN FOX GOTHAM

Abstract

Since the classic work of Henri Lefebvre and David Harvey, the ‘secondary circuit of capital’ has been a focal point for debate among critical urban scholars. Against the background of contemporary debates on financialization, this article investigates the institutional and political roots of the subprime mortgage crisis. Empirically, the article situates the current turmoil of the US mortgage sector with reference to a series of ad hoc legal and regulatory actions taken since the 1980s to promote the securitization of mortgages and expand the secondary mortgage market. Securitization is a process of converting illiquid assets into transparent securities and is a critical component of the financialization of real estate markets and investment. Specifically, I examine the crucial role played by the US Treasury Department's Office of the Comptroller of the Currency (OCC) and the Department of Housing and Urban Development (HUD) in creating the polices and legal‐regulatory conditions that have nurtured the growth of a market for securitizing subprime loans. Theoretically, the article examines the subprime mortgage crisis as an illustration of the contradictions of capital circulation as expressed in the tendency of capital to annihilate space through time. Résumé Depuis les travaux de référence d’Henri Lefebvre et de David Harvey, le ‘circuit secondaire des capitaux’ a suscité de nombreuses discussions entre spécialistes critiques de la ville. Avec en toile de fond les débats contemporains sur la financiarisation, cet article étudie les racines institutionnelles et politiques de la crise des subprimes. Sur le plan empirique, il situe le bouleversement actuel du secteur américain des prêts hypothécaires par rapport à une série de mesures de Droit et de réglementations spécifiques adoptées depuis les années 1980 pour promouvoir la titrisation et le marché secondaire des crédits hypothécaires. La titrisation, qui permet de convertir des actifs peu liquides en valeurs mobilières transparentes, est une composante essentielle de la financiarisation de l’investissement et des marchés immobiliers. Une attention particulière est accordée au rôle crucial qu’ont joué, aux États‐Unis, l’autorité de surveillance des banques relevant du ministère des Finances (OCC), ainsi que le ministère du Logement et de l’Urbanisme (HUD), dans la création des cadres et des conditions juridico‐réglementaires qui ont nourri l’essor du marché de la titrisation des prêts hypothécaires à risque. Sur le plan théorique, l’article analyse la crise des subprimes comme une illustration des contractions de la circulation des capitaux, ces derniers tendant à anéantir l’espace par le temps.

Suggested Citation

  • Kevin Fox Gotham, 2009. "Creating Liquidity out of Spatial Fixity: The Secondary Circuit of Capital and the Subprime Mortgage Crisis," International Journal of Urban and Regional Research, Wiley Blackwell, vol. 33(2), pages 355-371, June.
  • Handle: RePEc:bla:ijurrs:v:33:y:2009:i:2:p:355-371
    DOI: 10.1111/j.1468-2427.2009.00874.x
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    References listed on IDEAS

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    1. Manuel B. Aalbers, 2009. "The Globalization and Europeanization of Mortgage Markets," International Journal of Urban and Regional Research, Wiley Blackwell, vol. 33(2), pages 389-410, June.
    2. Saskia Sassen, 2009. "When Local Housing Becomes an Electronic Instrument: The Global Circulation of Mortgages — A Research Note," International Journal of Urban and Regional Research, Wiley Blackwell, vol. 33(2), pages 411-426, June.
    3. H MacDonald, 1996. "The Rise of Mortgage-Backed Securities: Struggles to Reshape Access to Credit in the USA," Environment and Planning A, , vol. 28(7), pages 1179-1198, July.
    4. Richard K. Green & Susan M. Wachter, 2005. "The American Mortgage in Historical and International Context," Journal of Economic Perspectives, American Economic Association, vol. 19(4), pages 93-114, Fall.
    5. Geir Inge Orderud, 2006. "The Norwegian Home‐building Industry — Locally Embedded or in the Space of Flows?," International Journal of Urban and Regional Research, Wiley Blackwell, vol. 30(2), pages 384-402, June.
    6. Igal Charney, 2001. "Three Dimensions of Capital Switching within the Real Estate Sector: A Canadian Case Study," International Journal of Urban and Regional Research, Wiley Blackwell, vol. 25(4), pages 740-758, December.
    7. Manuel B. Aalbers, 2007. "Geographies of Housing Finance: The Mortgage Market in Milan, Italy," Growth and Change, Wiley Blackwell, vol. 38(2), pages 174-199, June.
    8. Kathe Newman, 2009. "Post‐Industrial Widgets: Capital Flows and the Production of the Urban," International Journal of Urban and Regional Research, Wiley Blackwell, vol. 33(2), pages 314-331, June.
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