The foreclosure crisis that followed the subprime crisis has had significant negative consequences for minority homeowners. This column reviews recent evidence in the racial and ethnic differences in high cost loans and in loan performance. Minority homeowners, especially black homebuyers, faced higher price of mortgage credit and had worse credit market outcomes during the crisis. This is largely due to the fact that minority borrowers are especially vulnerable to the economic downturn.
Stephen L. Ross, 22 August 2014
Johannes Stroebel, 13 December 2012
Mortgage markets arguably spawned the post-Lehman crises – think subprime, Ireland, and Spain. This column argues that asymmetric information between competing lenders is an important feature in the financing of newly developed homes. Interestingly, lenders differ significantly in their information about true underlying housing collateral values. It is the identification of asymmetric information that allows policymakers to develop proposals that would improve how the market works and, with the right policies, how governments can limit the negative impact of asymmetry.
Stefano Puddu, Andreas Wälchli, 12 December 2012
Did the Federal Reserve act as ‘lender of last resort’ during the worst of the crisis? This column contributes to the current debate on the appropriateness and effectiveness of non-standard measures that have been taken by the Fed. Quantitatively measuring the effect of the Term Auction Facility on participating banks’ liquidity risk, it seems that, because the Term Auction Facility programme provided banks with enough time to adjust exposures on their balance sheets, the Fed did act as ‘lender of last resort’.
Joshua Aizenman, Ilan Noy, 25 August 2012
In the years leading up to the global crisis, the US focused on subsidising home ownership, whereas Germany placed much more emphasis on education and vocational training. While it is easy to think that this explains the subsequent performance of the two economies, this column provides some much needed economic analysis.
Geert Bekaert, Michael Ehrmann, Marcel Fratzscher, Arnaud Mehl, 12 August 2011
As financial markets take another turn, this column explores lessons from the global crisis of 2007-2009 and discusses the source and determinants of contagion. It argues that real and financial linkages to the US or the global economy played a relatively minor role. Instead the crisis was a “wake-up call” to investors to pay more attention to countries’ policies and fundamentals.
Deniz Igan, Prachi Mishra, 11 August 2011
Did anti-regulation lobbying fuel the subprime crisis? This column shows that there is a strong relationship between financial industry lobbying and favourable financial regulation legislation. It argues that the financial industry fought, and defeated, measures that might have curbed some of the reckless lending practices that many think played a pivotal role in igniting the crisis.
Atif Mian, Francesco Trebbi, Amir Sufi, 10 February 2011
Several academics, policymakers, and regulators emphasise the role of foreclosures in the Great Recession and subsequent global crisis. This column provides one of the first attempts to show this empirically. Using micro-level data from all US states, it shows that foreclosures had a significant negative effect on house prices, residential investment, durable consumption – and consequently the real economy.
Richard Baldwin, 25 December 2010
Vox takes its annual break between 25 December 2010 and 2 January 2011. This column documents the coevolution of VoxEU and the global economic crisis since June 2007. It also highlights a few columns that readers should read (or re-read) in preparation for the Eurozone’s next crisis.
Charles W Calomiris, Inessa Love, Maria Soledad Martinez Peria, 11 December 2010
Autumn 2008 was calamitous for global equities. This column presents data on stock returns from over 17,000 firms in 44 countries suggesting that the decline in share prices was associated with three separate and identifiable “shock factors”: the fall in global demand, the contraction of credit supply, and the selling pressure on equity as investors were forced to unload some of their holdings.
Enrico Perotti, 13 October 2010
CEPR Policy Insight No.52 highlights how the 2005 bankruptcy changes created a negative externality for all intermediaries in liquidity runs, the leading cause of shock propagation in the credit crisis
Enrico Perotti, 13 October 2010
How did the bank-funding system get so fragile to mletdown and lead to the worst crisis since WWII? In a new CEPR Policy Insight, Enrico Perotti argues that an important part of the answer lies in the bankruptcy privileges granted in 2005 to overnight secured credit and derivatives by the US authorities. These privileges made such lending safe for the lenders and thus cheap for the borrowers. The result was fantastic growth in this market to the detriment of stability.
Paolo Angelini, Andrea Nobili, 03 October 2010
Financial markets were in a state of fear during the summer of 2007. The spread between interest rates on unsecured and secured deposits recorded an unprecedented rise. This column examines trading data from European banks to argue that the widening spread was driven by aggregate factors – risk aversion and accounting practices – rather than bank-specific concerns.
William C. Wheaton, 26 September 2010
Recent estimates suggest as many as 23% of US mortgages are “underwater” –the value of the home collateralising the mortgage has fallen below the loan’s balance. This column outlines a proposal to remove the threat of strategic default in these cases – one that it argues is not only fair but also the most likely to allow the US housing market to recover.
Mark Cassell, Susan Hoffmann, 22 September 2010
While many policymakers concerned with suppressing the global crisis are looking to the Great Depression as a guide, this column suggests that many are missing a trick. In a new book, the authors argue that the Federal Home Loan Bank, set up to solve the financial crises of the 1930s, is an unparalleled source of housing finance expertise which, with reform, could be vital to policymakers today.
Kenneth A. Snowden, 10 September 2010
Was the subprime crisis inevitable? This column looks at how the last mortgage crisis in the 1930s shaped the policy landscape in the US, arguing that it eventually led to the emergence of private securitisation in the 1990s, a surge in homebuilding and homeownership, and a second great mortgage crisis that was just around the corner.
Carmen M Reinhart, Kenneth Rogoff, Rong Qian, 31 August 2010
Are declarations of victory against the global crisis premature? This column argues that “graduation” – the emergence from recurrent crisis bouts – is a long and painful process which neither developed nor developing countries look close to completing. Two centuries of evidence suggests that most countries need 50 years before the chances of further crises subside.
Edward Glaeser, Joshua Gottlieb, Joseph Gyourko, 28 August 2010
The debate over the cause of the US housing boom and bust is far from concluded. This column questions the explanation that low interest rates were a critical factor, arguing that it sits uneasily alongside theories of household behaviour and historical evidence. With the causes remaining uncertain, the authors call for more research in this area.
Ralph De Haas, Neeltje van Horen, 25 August 2010
The subprime crisis and subsequent global crisis have brought bank finances firmly to public attention, with many calling for stronger regulation. This column argues that the subprime crisis offered a “wake-up call” for banks, prompting them to screen and monitor their corporate borrowers more carefully without the need for more regulation. This may have contributed to the subsequent reduction in corporate lending.
Thorvaldur Gylfason, 18 August 2010
In Mel Brooks’ hit film and Broadway musical The Producers, those charged with making their musical a success instead try to profit from making it a spectacular failure. This column argues that some bankers may have been playing the same game in the run up to the global crisis. If so, just as in The Producers, the perpetrators should be heading to jail.
Alex Edmans, 17 July 2010
Foreclosure is often seen as a lose-lose situation. This column describes a new incentive scheme aimed at reducing strategic defaults. The Responsible Homeowner Reward, a debt-like security that only pays off if the lender is repaid in full, is being implemented in the US.