The Transformation of Mortgage Finance and the Industrial Roots of the Mortgage Meltdown
The 2007-2009 financial crisis was centered on the mortgage industry. This paper develops a distinctly sociological explanation of that crisis based on Fligsteinâ€™s (1996) markets as politics approach and the sociology of finance. 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 in all phases of the mortgage industry including the production of financial products. The results of multivariate regression analyses show that the â€œindustrialâ€ model drove the deterioration in the quality of securities that firms issued and significantly contributed to the eventual failure of the firms that pursued the strategy. We show that large global banks which were more involved in the industrial production of U.S. mortgage securities also experienced greater investment losses. The findings challenge existing conventional accounts of the crisis and provide important theoretical linkages to the sociology of finance
|Date of creation:||01 Oct 2012|
|Date of revision:|
|Contact details of provider:|| Postal: 2521 Channing Way # 5555, Berkeley, CA 94720-5555|
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.:
- Douglas W. Diamond & Raghuram Rajan, 2009.
"The Credit Crisis: Conjectures about Causes and Remedies,"
NBER Working Papers
14739, National Bureau of Economic Research, Inc.
- Douglas W. Diamond & Raghuram G. Rajan, 2009. "The Credit Crisis: Conjectures about Causes and Remedies," American Economic Review, American Economic Association, vol. 99(2), pages 606-10, May.
- Yuliya Demyanyk & Otto Van Hemert, 2009.
"Understanding the subprime mortgage crisis,"
Federal Reserve Bank of San Francisco, issue Jan.
- 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.
- Christopher Mayer & Karen Pence & Shane M. Sherlund, 2009.
"The Rise in Mortgage Defaults,"
Journal of Economic Perspectives,
American Economic Association, vol. 23(1), pages 27-50, Winter.
- Alex Preda, 2007. "The Sociological Approach To Financial Markets," Journal of Economic Surveys, Wiley Blackwell, vol. 21(3), pages 506-533, 07.
- Ravi Jagannathan & Mudit Kapoor & Ernst Schaumburg, 2009. "Causes of the Great Recession of 2007-9: The Financial Crisis is the Symptom not the Disease!," NBER Working Papers 15404, National Bureau of Economic Research, Inc.
- Gorton, Gary B., 2010. "Slapped by the Invisible Hand: The Panic of 2007," OUP Catalogue, Oxford University Press, number 9780199734153, May.
- Daniel Beunza & David Stark, 2004. "Tools of the trade: the socio-technology of arbitrage in a Wall Street trading room," Industrial and Corporate Change, Oxford University Press, vol. 13(2), pages 369-400, April.
- Efraim Benmelech & Jennifer Dlugosz, 2010.
"The Credit Rating Crisis,"
in: NBER Macroeconomics Annual 2009, Volume 24, pages 161-207
National Bureau of Economic Research, Inc.
When requesting a correction, please mention this item's handle: RePEc:cdl:indrel:qt2zx8r7fb. 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.