From the Inside Flap
For decades, the home mortgage market successfully extended credit to more and more families, enabling millions of Americans to own their own homes. In recent years, however, it became ever more apparent that credit was expanding too rapidly and too many market participants were becoming dangerously leveraged. What began as healthy growth in mortgage originations and housing starts swiftly became a home price bubble. When home prices did come plunging back to earth, the damage quickly spread far beyond the scope of the actual mortgage defaults and foreclosures. Even solid companies with no connection to the real estate and finance sectors were affected as credit markets seized up. How did this happen—and what can we do about it now?
In The Rise and Fall of the U.S. Mortgage and Credit Markets, James Barth, with the assistance of his colleagues at the Milken Institute, analyzes in detail the mortgage meltdown and the resulting worldwide financial crisis. He explains how Main Street and Wall Street alike took on too much risk and too much debt in their quest for gains, setting the crisis in motion.
In straightforward terms, he tells what subprime mortgages are, who subprime borrowers are, and how securitization—packaging loans into complex securities and selling them in the secondary market—expanded the mortgage market, but also opened the door to a shifting of risk. Barth also assesses what went wrong in every other critical area, including loan origination practices, regulation and supervision, Fannie Mae and Freddie Mac, leverage and accounting practices, and, of course, the rating agencies.
The author explains the steps the government has taken thus far and suggests that those actions have been piecemeal—and largely reactive, rather than proactive. He argues that we have yet to address the bigger and more long-term issue of how to reform the structure of regulation and supervision to prevent a similar crisis from happening again. Barth also offers his own thoughts on the factors that should drive reform and explores several important issues that policymakers must address in any future reshaping of financial market regulations.
From the Back Cover
Praise for The Rise and Fall of the U.S. Mortgage and Credit Market"This book is a detailed account of the financial crisis that engulfed the United States and the world starting in 2007. It is written in a way that makes it widely accessible, and is a must-read for anyone who wants a primer on the crisis and what to do to prevent it from occurring again. Its message that the crisis was due, in substantial measure, to a failure to enforce existing regulations should give pause to those who want to suffocate the financial sector with new regulations."
—Raghuram G. Rajan, Eric J. Gleacher Distinguished Service Professor of Finance, University of Chicago Booth School of Business
"Looking beyond the excesses of mortgage lending and easy credit, the authors dig deeper to identify the underlying roots of the current problems and proffer solutions to resolve the financial crisis while carefully acknowledging the risks of an overly zealous political response and excessive new regulation. This is a foundational work to understanding the sources of the current crisis and future policy options available to resolving it."
—B. Scott Minerd, CEO and Chief Investment Officer, Guggenheim Partners Asset Management
"If you want to know what happened to the U.S. financial system in 2008, you must read this book. It provides incisive analysis, while carefully and comprehensively documenting the dramatic unfolding of the financial crisis."
—Ross Levine, James and Merryl Tisch Professor of Economics and Director of the William R. Rhodes Center for International Economics, Brown University
"From my perspective as a journalist covering the biggest financial story since the Great Depression, this scholarly and instructive examination of our current market meltdown is an indispensable resource that quickly untangles the complex matter. The author's perceptive dissection of this historic economic fiasco is supported by an impressive compilation of data and statistics that I intend to keep at my elbow."
—Jim McTague, Washington Editor, Barron's
"If you want to read one authoritative, clear, and balanced book on the subprime mortgage crisis, then read this important and timely volume by a terrific Milken Institute team of scholars. Policymakers should pay heed to their analyses and sensible recommendations."
—Robert E. Litan, Vice President of Research and Policy, Ewing Marion Kauffman Foundation, and Senior Fellow, The Brookings Institution
The mortgage meltdown: what went wrong and how do we fix it?
Owning a home can bestow a sense of security and independence-but today, in a cruel twist, many Americans now find their homes to be a source of worry and dashed expectations.
How did everything change so suddenly and dramatically? In The Rise and Fall of the U.S. Mortgage and Credit Markets, renowned economist and finance expert James Barth offers a comprehensive examination of the mortgage market meltdown and its reverberations throughout the financial sector and the real economy.
In accessible, easy-to-understand terms, Barth explains how the era of easy credit and increased risk-taking produced disastrous results for both Main Street and Wall Street. He also details the government's sweeping and historic interventions in the marketplace, which raised a host of thorny questions and created a mountain of new debt and obligations for taxpayers. Finally, Barth offers a prescription for moving forward—and for preventing similar crises from ever again shaking the foundations of our financial system.
