lending market and its aftermath reflec
The Leir Center For Financial Bubble Research
Working Paper #1
THE KINDLEBERGER-ALIBER-MINSKY PARADIGM AND THE GLOBAL SUBPRIME MORTGAGE MELTDOWN
William V. Rapp, The New Jersey Institute of Technology, United States, email@example.com
This paper analyzes the current …show more content…
The US residential mortgage market is a multi-trillion dollar market that dramatically increased over the last five years. In June 2007 residential and non-profit mortgages outstanding amounted to $10.143 trillion up from $5.833 trillion as of September 2002 (Federal Reserve, 2007) and from $2.3 trillion in 1989 (Korngold and Goldstein, 2002). In turn the number of firms and organizations participating in this huge market has proliferated. Traditionally up until about twenty-five years ago home loans and mortgage were usually arranged between a local bank or local savings and loan [S&L] and a local borrower with the bank or S&L holding the mortgage subject to local real estate laws and land registry regulations until maturity or the home was sold or the mortgage refinanced. But starting in the 1980s and expanding into the 1990s and the first years of this century, that all changed. Banks and S&Ls discovered the benefits of securitization and balance sheet turnover. They realized mortgages and other regular payment credit instruments such as auto loans and credit cards had steady cash flows that if bundled would provide investors with a steady income stream that could be capitalized and sold. This led to the concept of securitizing these cash flows.
Now banks and S&Ls rather than holding the loans in as investments bundled and sold them to investors while retaining the servicing