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Unformatted text preview: Insufficient capital (capital adequacy requirements) Asset sales (deleveraging) FIs owning MBS Fall in house prices Foreclosure: more houses for sale Refinancing not possible Fall in home equity Rational to walk away Rise in house prices (bubble) Expectation of future price rises Moral hazard Low cost of capital Loose monetary policy = low interest rates Implicit guarantees & too-big-to-fail Incentive structures Losses for owners of mortgage-backed securities (MBS) No restructuring due to coordi-nation problem Securitization Capital requirements Default on subprime mortgages...
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This note was uploaded on 10/06/2010 for the course ECON FINANCE taught by Professor Kaipommerenke during the Spring '09 term at UCSC.
- Spring '09