The Rise and Fall of the Nonconventional Mortgage Industry
The 2007-2009 financial crisis was centered on the nonconventional mortgage industry. Scholars have just begun to carefully consider what really caused the crisis. This paper pushes the debate forward in several ways. First, we elucidate four different theoretical approaches, "financialization", "actor-network/performativity", "perverse incentives", and ""markets as politics"" to understanding how the mortgage securitization industry evolved. We generate hypotheses and relevant data and show that the â€œmarkets as politicsâ€ approach accounts for the social structuring of the market from 1990-2008. Second, we use archival and secondary sources to show that the industry became dominated by an â€œindustrialâ€ conception of control whereby financial firms vertically integrated in order to capture profits at all points in the value chain. In 2004, the conventional mortgage market turned down. Financial firms entered the nonconventional market in order to keep their â€œindustrialâ€ conception going. The nonconventional market thrived for three years but when it turned down, the firms that went bankrupt were those who were the most committed to the â€œindustrialâ€ conception of control.
|Date of creation:||02 Apr 2010|
|Date of revision:|
|Contact details of provider:|| Postal: |
Web page: http://www.escholarship.org/repec/iir_iirwps/
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Vasiliki Skreta & Laura Veldkamp, 2008.
"Ratings Shopping and Asset Complexity: A Theory of Ratings Inflation,"
08-28, New York University, Leonard N. Stern School of Business, Department of Economics.
- Skreta, Vasiliki & Veldkamp, Laura, 2009. "Ratings shopping and asset complexity: A theory of ratings inflation," Journal of Monetary Economics, Elsevier, vol. 56(5), pages 678-695, July.
- Vasiliki Skreta & Laura Veldkamp, 2009. "Ratings Shopping and Asset Complexity: A Theory of Ratings Inflation," NBER Working Papers 14761, National Bureau of Economic Research, Inc.
- Efraim Benmelech & Jennifer Dlugosz, 2009.
"The Credit Rating Crisis,"
NBER Working Papers
15045, National Bureau of Economic Research, Inc.
- Yuliya Demyanyk & Otto Van Hemert, 2008.
"Understanding the subprime mortgage crisis,"
1092, Federal Reserve Bank of Chicago.
- Yuliya Demyanyk & Otto Van Hemert, 2009. "Understanding the subprime mortgage crisis," Proceedings, Federal Reserve Bank of San Francisco, issue Jan.
- Yuliya Demyanyk & Otto Van Hemert, 2011. "Understanding the Subprime Mortgage Crisis," Review of Financial Studies, Society for Financial Studies, vol. 24(6), pages 1848-1880.
- Christopher James & Joel Houston, 1996. "Evolution Or Extinction: Where Are Banks Headed?," Journal of Applied Corporate Finance, Morgan Stanley, vol. 9(2), pages 8-23.
- Alex Preda, 2007. "The Sociological Approach To Financial Markets," Journal of Economic Surveys, Wiley Blackwell, vol. 21(3), pages 506-533, 07.
When requesting a correction, please mention this item's handle: RePEc:cdl:indrel:qt1dm808j6. 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: (Lisa Schiff)
If references are entirely missing, you can add them using this form.