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Subprime Mortgage Market and Current Financial Crisis

In: Housing Market Challenges in Europe and the United States

Author

Listed:
  • Philip Arestis

    (University of Cambridge)

  • Elias Karakitsos

    (PCC, Ltd)

Abstract

The prevalent view is that the current credit crisis has its origin in the bust of the housing bubble. But what is missing from this view is that the finance of a bubble is only possible through a corresponding increase in credit — no credit, no bubble. Thus at the heart of the current woes lies the excessive liquidity that was put in place in the last ten years or so.3 This liquidity financed in the first instance the internet bubble, but because there was no deleverage following the burst of this bubble the liquidity went on to finance other bubbles, including housing, private equity and commodities. Thus, the housing bubble is a transformation of the previous internet bubble.

Suggested Citation

  • Philip Arestis & Elias Karakitsos, 2009. "Subprime Mortgage Market and Current Financial Crisis," Palgrave Macmillan Books, in: Philip Arestis & Peter Mooslechner & Karin Wagner (ed.), Housing Market Challenges in Europe and the United States, chapter 3, pages 40-59, Palgrave Macmillan.
    • Handle: RePEc:pal:palchp:978-0-230-24698-0_3
    DOI: 10.1057/9780230246980_3
    as

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    Citations

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    Cited by:

    1. Chatziantoniou, Ioannis & Filis, George & Floros, Christos, 2017. "Asset prices regime-switching and the role of inflation targeting monetary policy," Global Finance Journal, Elsevier, vol. 32(C), pages 97-112.
    2. Philip Arestis & Malcolm Sawyer, 2010. "What Monetary Policy after the Crisis?," Review of Political Economy, Taylor & Francis Journals, vol. 22(4), pages 499-515.
    3. Schinckus, Christophe, 2017. "Financial innovation as a potential force for a positive social change: The challenging future of social impact bonds," Research in International Business and Finance, Elsevier, vol. 39(PB), pages 727-736.

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