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The Mortgage Crisis

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The Mortgage Crisis Powered By Docstoc
					The Mortgage Crisis
   PLS 480
    Greed and Need

   Dr. Emerson
Sub Prime Problem
   Delinquency rate 2 tenths of 1 % in 1979

   Today 2% (10 times higher)

   Moyer’s Report
    http://www.pbs.org/moyers/journal/071820
    08/watch.html
Context: Regulate or Deregulate
   Constitution requires
    Congress regulate
    banks
   Congress leaves
    regulation to States.
   In 1913 FED
    authorized by
    Congress.
Little Regulation Until New Deal
   Unregulated stock
    market
   Bank’s heavily
    invested in stocks
   Deposits not insured
Regulation
                Glass Steagall Act
                FDIC

                Security & Exchange
                 Commission
                Freddie Mac/ Fannie Mae

                HUD in 1960s
Deregulation
   Deregulation of S&Ls
   No regulation of
    “derivatives”
   Mortgages may be
    sold in fractions.
Deregulation Continues
                  Savings/Loan
                   Scandal

                  Congress repeals
                   Glass Steagall Act in
                   1999.
Federal Reserve Bank Policies
                  Low interest rates
                  Sub primes
                   unregulated
                  No regulation of
                   ‘innovative financing’
                  No action regarding
                   defaults
What is market response?




   Over price houses
   Piggy back sub primes with regulated ‘primes’
   Little or no documentation of house/buyer
GAO Report

 No   piggyback and documentation 0% defaults

 Piggyback   OR little documentation 25-31%

 Piggyback   AND no documentation = 60%
Why No Demands by Lenders?
   Don’t know-
    ‘decoupling’

   If fail then resell at
    higher price

   Loan is asset not
    borrower’s capacity to
    repay
Evidence
 Mortgage type and loss to homeowner and
  investor (Mortgage Banker Association)
 Spillover of Mortgage Subprime to Prime
  trends (First American Loan Performance)
 Stock Market Performance (Dow Jones
  Industrial Average)
 Jobs (Bureau of Labor Statistics)
 Recover of US (OECD)
Foreclosures By Mortgage Type
 Which type serves
  mortgage buyer
  AND homeowner?
 Difference between
  red bar, green and
  yellow?
       Relationship of Prime
           to Sub-prime
 Spillover of
  subprime default
  on prime.
 Top line =subs but
  bottom line
  =primes
Stock Market Learning Curve
 Dips and peaks in
  stock market
  performance
  2000- July 2009
 Prior dip July
  2003. Why?
JOBS
   Impact of policies
    on jobs

    (Bureau of Labor Statistics)
Recovery Comparison
 US System
  Recovery versus
  other Industrialized
  Democracies
 Red line US vs.
  France, Germany
  and Japan
  (OECD)
                    Break
   Be back in 10 minutes for the analysis
Finish this lecture: (7 groups)
1.   Dem. Capitalist –explain
2.   Dem. Capitalist –policy opt.
3.   Dem. Socialist—explain
4.   Dem. Socialist – policy opt.
5.   Conservatives interpretation
6.   Liberal interpretation
7.   Madison
     interpretation/options
Democratic Capitalists Explain
   Democratic
    Capitalist explain
    evidence ---
Democratic Capitalists
   Future Policy
    Preference

   Reasoning
Democratic Socialist
   Democratic
    Capitalist explain
    evidence ---
Democratic Socialist
   Future Policy
    Preference

   Reasoning
Conservative
   Interpretation of
    Evidence and
    Meaning
Liberal
   Interpretation
Madison Model
 Interpretation/
  Explanation
 Policy Options
Conclusion
                Justice is the end
                 of government. It is
                 the end [purpose]
                 of civil society. It
                 ever has and ever
                 will be pursued
                 until liberty is lost..
                 Madison, FP 51
                       Citations

   Alford, Rob (2003). What are the origins of Freddie Mac
    and Fannie Mae. Accessed August 28, 2008 at
    http://hnn.us/articles/1849.html.

   Bitner, Richard (2008). Inside the Subprime Debacle.
    U.S. News and World Report. 145 (2) 12.

   GAO Report (2007) Briefing to the Committee on
    Financial Service, House of Representatives. GPO:
    Washington, D. C.
                    Citations
   Jost, Kenneth (2008). Financial Crisis. CQ
    Researcher 18(18), 409-422

   Phillips, Kevin (2002). Wealth and Democracy.
    New York: Random House.

   Reynolds, Maura. (2008). Mortgages: Loan
    troubles hit new heights: foreclosure rate climbs
    to 2% for the 4th quarter. Home equity drop. Los
    Angeles Times. C-1.
Q and A
                   Postscript
   Define issue

 Use Library Resources, no Wikipedia
  (https://blackboard.csupomona.edu/webap
  ps/login/)
 See
  http://www.csupomona.edu/~library/databa
  ses/politicalscience.html
          Postscript (cont.)
 Use correct APA citations. See:
  http://owl.english.purdue.edu/owl/resource
  /560/01/
 Looking for: timely, data (e.g. GAO), both
  sides of issue.
NOT
  http://www.hillbillyreport.com/blog/bear_st
  earns//
              Postscript (cont.)

   Analysis: Freedom, Liberty, Reason and Justice
   Conclusions and Opposition argument

 Power Point: Common Errors
(http://www.youtube.com/watch?v=HLpjrHzgSRM)
                      versus
http://www.youtube.com/watch?v=vXFi7AdhhGk&f
  eature=related (good example)
Sub-prime
mortgages
The end

				
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