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The Rise and Fall of the US Mortgage and Credit Markets: A Comprehensive Analysis of the Market Meltdown


Praise for The Rise and Fall of the U.S. Mortgage and Credit Market

"This book is a detailed account of the financial crisis that engulfed the United States and the world starting in 2007. It is written in a way that makes it widely accessible, and is a must-read for anyone who wants a primer on the crisis and what to do to prevent it from occurring again. Its message that the crisis was due, in substantial measure, to a failure to enforce existing regulations should give pause to those who want to suffocate the financial sector with new regulations."
Raghuram G. Rajan, Eric J. Gleacher Distinguished Service Professor of Finance, University of Chicago Booth School of Business

"Looking beyond the excesses of mortgage lending and easy credit, the authors dig deeper to identify the underlying roots of the current problems and proffer solutions to resolve the financial crisis while carefully acknowledging the risks of an overly zealous political response and excessive new regulation. This is a foundational work to understanding the sources of the current crisis and future policy options available to resolving it."
B. Scott Minerd, CEO and Chief Investment Officer, Guggenheim Partners Asset Management

"If you want to know what happened to the U.S. financial system in 2008, you must read this book. It provides incisive analysis, while carefully and comprehensively documenting the dramatic unfolding of the financial crisis."
Ross Levine, James and Merryl Tisch Professor of Economics and Director of the William R. Rhodes Center for International Economics, Brown University

"From my perspective as a journalist covering the biggest financial story since the Great Depression, this scholarly and instructive examination of our current market meltdown is an indispensable resource that quickly untangles the complex matter. The author's perceptive dissection of this historic economic fiasco is supported by an impressive compilation of data and statistics that I intend to keep at my elbow."
Jim McTague, Washington Editor, Barron's

"If you want to read one authoritative, clear, and balanced book on the subprime mortgage crisis, then read this important and timely volume by a terrific Milken Institute team of scholars. Policymakers should pay heed to their analyses and sensible recommendations."
Robert E. Litan, Vice President of Research and Policy, Ewing Marion Kauffman Foundation, and Senior Fellow, The Brookings Institution

The mortgage meltdown: what went wrong and how do we fix it?

Owning a home can bestow a sense of security and independence-but today, in a cruel twist, many Americans now find their homes to be a source of worry and dashed expectations.

How did everything change so suddenly and dramatically? In The Rise and Fall of the U.S. Mortgage and Credit Markets, renowned economist and finance expert James Barth offers a comprehensive examination of the mortgage market meltdown and its reverberations throughout the financial sector and the real economy.

In accessible, easy-to-understand terms, Barth explains how the era of easy credit and increased risk-taking produced disastrous results for both Main Street and Wall Street. He also details the government's sweeping and historic interventions in the marketplace, which raised a host of thorny questions and created a mountain of new debt and obligations for taxpayers. Finally, Barth offers a prescription for moving forward—and for preventing similar crises from ever again shaking the foundations of our financial system.

James R. Barth is a Senior Fellow at the Milken Institute and the Lowder Eminent Scholar in Finance at Auburn University. His research focuses on financial institutions and capital markets, both domestic and global, with special emphasis on regulatory issues. Barth was an appointee of Presidents Ronald Reagan and George H.W. Bush as chief economist of the Federal Home Loan Bank Board and later of the Office of Thrift Supervision. He has authored more than 200 articles in professional journals and has written and edited several books, including The Great Savings and Loan Debacle, The Reform of Federal Deposit Insurance, and Rethinking Bank Regulation: Till Angels Govern. Barth has been quoted in publications ranging from the New York Times to the Wall Street Journal and has appeared on broadcast programs including The McNeil/Lehrer NewsHour, Good Morning America, Moneyline, and CNBC's Closing Bell.
List of Illustrations.

List of Tables.


Chapter 1 Overleveraged, from Main Street to Wall Street.

Chapter 2 Overview of the Housing and Mortgage Markets.

Housing Units, Mortgage Debt, and Household Wealth.

Types of Home Mortgages.

Two Housing Finance Models: Originate-to-Hold vs. Originate-to-Distribute.

Low Interest Rates Contribute to Credit Boom and Record Homeownership Rates.

Mortgage Originations, Home Prices, and Sales Skyrocket.

Chapter 3 Buildup and Meltdown of the Mortgage and Credit Markets.

What Is a Subprime Mortgage and Who Is a Subprime Borrower?

Subprime Lending Grows Rapidly and New Products Gain Acceptance.

Subprime Mortgages Enable More Widespread Homeownership.

Securitization Facilitates the Funding of Subprime Mortgages.

The Housing Bubble Reaches the Breaking Point.

The Collapse Begins.

Chapter 4 When Will the Crisis End?

What Is the Damage Scorecard to Date?

The Pain Spreads throughout the Financial Sector and Beyond.

When Will We Hit Bottom?

Chapter 5 What Went Wrong . . . ?

. . . with Origination Practices and New Financial Products?

. . . with Securitization and Rating Agencies?

. . . with Leverage and Accounting Practices?

. . . with Fannie Mae and Freddie Mac?

. . . with Tax Benefits for Homeownership?

. . . with Regulation and Supervision?

. . . with the Greed Factor?

Assessing the Role of Various Factors to Explain Foreclosures.

Chapter 6 So Far, Only Piecemeal Fixes.

The Landscape Shifts for Lenders.

The Federal Reserve Intervenes to Provide Liquidity and Higher-Quality Collateral.

Congress and the White House Take Steps to Contain the Damage.

The FDIC Takes Steps to Instill Greater Confidence in Depository Institutions.

The Government’s Actions Drive up the Deficit.

Chapter 7 Where Should We Go from Here?

Key Factors That Should Drive Reform.

Issues for Policymakers.

Concluding Thoughts.





About the Milken Institute and General Disclaimer.

About the Authors.