Whether this results from hubris its twin

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to the point where excessive risks are engendered. Whether this results from hubris, its twin, overconfidence, a lack of economic training and experience, or just poor ethics no one knows for sure. Undoubtedly it is a result of all these elements combined. The laws of financial gravity, particularly with respect to long periods of price increases, have not been repealed by financial innovation and the many risk sharing contracts now being promulgated. For all our sophistication in finance we should remember two things: 1) It is impossible to eliminate systemic risk in the aggregate , although you can share it among an increasing number of participants with the many derivatives we now have; and 2) Policies promoting both solid ethics and conservative financing principles are always needed . The more ethics failures we endure, the tighter regulations will have to become, with all the inefficiencies and increase in regulatory burdens this entails. It is also becoming increasingly obvious to me that regulations/regulators have not kept up with financial innovation. Whether this is due to inherent conflicts of interest, lack of funding or training or other reasons cannot be determined. When you include overseas markets it becomes apparent that we have been moving from one crisis to another every few years as capital markets have grown at such a rapid pace with extensive innovation. Perhaps this is nothing new, the capital markets have always operated under the premise of “ caveat emptor .” 2. The Primary Mortgage Market The origination and financing of mortgages are now largely separate functions. One of the primary purposes of the government’s presence in the mortgage markets is to ensure the availability of mortgage credit wherever it is demanded. Government mortgage insurance and the securitization process have created a national market for financing mortgages . Thus, the financing of mortgages is national, or even international, in scope. The origination (creation) of mortgages is still primarily a local market, for instance, typically one does not go to another state to obtain a mortgage. The originators, however often sell the mortgage (individually or in a pool). 4 Electronic mortgage origination has not grown as dramatically as predicted. Applying for a mortgage online remains a cumbersome task, hurting this area of business. Teaching Tip: Government involvement has accomplished at least two socially desirable outcomes. One, it has allowed younger, less wealthy people to own homes by eliminating the large down payment, thus facilitating a part of the “American dream” of home ownership. Second, it has helped poorer regions of the country such as West Virginia, Montana, etc that would not have had enough mortgage credit available to meet the demand for funds.
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  • Spring '13
  • Mesami
  • The Land, Mortgage loan, Mortgage Markets

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