Publication: The U.S. Subprime Mortgage Crisis: Issues Raised and Lessons Learned
Date
2008
ISSN
Published
2008
Author(s)
Jaffee, Dwight M.
Abstract
The subprime mortgage crisis ranks among
the most serious economic events affecting the United States
since the great depression of the 1930s. This study analyzes
key issues raised by the crisis at three levels: (i) issues
directly and specifically relating to subprime mortgage
lending; (ii) issues relating to the securitization of
subprime mortgages; and (iii) issues affecting financial
markets and institutions. These issues are fundamental to
risk bearing, sharing, and transfer in financial markets and
institutions around the world. Many of the issues raised by
the U.S. subprime crisis also apply to high-risk loan
markets in developing countries. The framework applied in
the paper analyzes subprime mortgage lending as a major
financial market innovation. Although conditions were
conducive for subprime lending to arise as a financial
innovation, financial innovations are necessarily risky
undertakings, all the more so when they create new classes
of risky loans and securities. The lessons learned from the
crisis can thus be usefully applied to issues of the growth
and development of emerging economies, as well as pointing
the way to the design of new and efficient policies for
subprime lending in the developed economies.
Citation
“Jaffee, Dwight M.. 2008. The U.S. Subprime Mortgage Crisis: Issues Raised and Lessons Learned. Commission on Growth and Development Working Paper;No. 28. © World Bank, Washington, DC. http://hdl.handle.net/10986/28008 License: CC BY 3.0 IGO.”