Description
In 2006 residential real estate prices peaked and started to fall, then threatened the world's financial institutions in 2007, and confronted the global economy with disaster in 2008. In the past few years, millions of people have lost very substantial portions of their wealth. And while the markets have rebounded considerably, they are still far from a full recovery. Now, professional economists, policy experts, public intellectuals, and the public at large are all struggling to understand the crisis that has engulfed us.In The Financial Crisis of Our Time, Robert W. Kolb provides an essential, comprehensive review of the context within which these events unfolded, arguing that while the crisis had no single cause, housing finance played a central role, and that to understand what happened, one must comprehend the mechanism by which the housing industry came into crisis. Kolb offers a history of the housing finance system as it developed throughout the twentieth century, and especially in the period from 1990 to 2006, showing how the originate-to-distribute model of mortgage financing presented market participants with a "clockwork of perverse incentives." In this system, various participants-simply by pursuing their narrow personal interests-participated in an elaborate mechanism that led to disaster. The book then gives a narrative of the crisis as it developed and analyzes all of the participants in the housing market, from the home buyers to investors in collaterialized debt obligations (CDOs). At each step, the book explains in a nontechnical manner the essential relationships among the market participants and zeroes in on the incentives facing each party. The book also includes an extensive glossary and a detailed, authoritative timeline of the subprime financial crisis.Offering a unique look at the participants and incentives within the housing finance industry and its role in the biggest financial catastrophe in recent history, Robert W. Kolb provides one of the most comprehensive and illuminating accounts of the events that will be studied for decades to come as the financial crisis of our time.
Table of Contents
Preface1. Introduction: The Financial Crisis of Our TimeBefore the Great DepressionFrom the Great Depression to Financial DeregulationFrom Financial Deregulation to the Savings and Loan Crisis2. From Securitization to SubprimeThe Development of SecuritizationThe Process of Securitization: An OverviewCredit EnhancementThe Subprime Difference3. Before the DelugeSubprime Lending: To the PeakThe Height of Subprime Lending4. From the Subprime Crisis to Financial Disaster: An OverviewThe Housing Peak to Hints of Something WrongThe Slide AcceleratesMortgage-Backed Securities and ForeclosuresNo Relief in 2008The Climax?Back From the Brink5. ExtinctionsAmong the RuinsFrom Countrywide to IndyMacIndyMacWashington MutualWachoviaBank Extinctions, Banking Consolidation, and Too-Big-to-Fail6. The End of Investment BankingBig Brains, Big Egos, and Big PayBear StearnsThe Bankruptcy of Lehman BrothersMerrill Lynch: The Herd Goes to the AbattoirGoldman Sachs, Morgan Stanley and the Week that Remade Wall Street7. When Zombies Walk The EarthFannie Mae and Freddie MacAIGCitigroup: The Biggest Zombie of Them AllZombies and the Future8. Policy Responses and The Beginnings of RecoveryUnfurling the TARPThe Market ReactsThe TARP EvolvesIntroduction of the TALFInstituting More Programs: The Public-Private Investment ProgramSupport for the Auto IndustrySupport for HomeownersGreen Shoots in the Financial SectorInitial Cost Assessment9. Causes of the Financial Crisis: Macroeconomic Developments and Federal PolicyThe Basic StoryMajor Asset Price CollapseConcentrated Exposure to the Failing Asset ClassLack of Transparency and Freezing of the Financial SystemMacroeconomic DevelopmentsFederal Stimulative Policy and LegislationAttempts to Combat Mortgage Lending Discrimination and to Expand Home Ownership to MinoritiesNational Homeownership StrategyThe Causal Role of the GSEs10. Causes of the Financial Crisis: The Failure of Prudential RegulationRegulation of Depository InstitutionsRegulation of Lines of BusinessCapital RequirementsInteraction Between Capital Regulation and Credit DerivativesRegulation of Size and Scope-"Too Big to Fail"Restrictions on Concentration of RiskRegulation of Securities Markets and Supporting InstitutionsCapital RegulationsOff-Balance Sheet Corporate EntitiesCredit-Rating AgenciesMark-to-Market Accounting RulesComplex Financial DerivativesThe Regulation of AIGPoor Regulation of Mortgage IndustryDefects in Regulatory Architecture11. Causes of the Financial Crisis: From Aspiring Homeowner to Mortgage LenderThe BorrowerThe LenderThe AppraiserThe Mortgage BrokerThe Mortgage Frenzy, the Originator, and Underwriting Standards12. Causes of the Financial Crisis: From Securitizer to Ultimate InvestorPurchasing MortgagesCreating Securities and Obtaining RatingsTo the Ultimate InvestorIncentives from Securitizer to Ultimate Investors13. Causes of the Financial Crisis: Financial Innovation, Poor Risk Management, and Excessive LeverageFinancial Innovation and the Creation of Complex InstrumentsPoor Risk ManagementExcessive Leverage14. Causes of the Financial Crisis: Executive Compensation and Poor Corporate GovernancePay at Financial FirmsRisk-Taking and Executive Compensation in the Financial CrisisIncentives, Risk-Taking and Compensation at Fannie MaeExecutive Compensation and Lehman BrothersIncentive ConflictsCorporate Governance in the Financial Crisis15. Consequences of the Financial Crisis and the Future It Leaves UsMeasuring the Damage: A WarningThe Bailout and Its CostsFrom 2006 to 2009: Our Economic World and How it Has ChangedReduced Circumstances: Our Economic FutureBeyond the Merely Economic-American Recessional or American Renewal?Perfecting the Fatally Flawed Regulatory Regimes of the PastThe Financial Crisis, the Great Recession, and Institutional FailuresFundamental Reform?"Too-Big-to-Fail"Corporate Governance, Executive Compensation, and Firms' Risk-TakingConclusion: Dopes, Genius, Saints, Scoundrels, and Ordinary People
