The Financial Crisis of Our Time

The Financial Crisis of Our Time

The Financial Crisis of Our Time

The Financial Crisis of Our Time

Synopsis

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.

Excerpt

The economic crisis that began in 2007 has changed the economic lives of Americans and many people around the world. By any measure, this financial crisis of our time is one of the most important economic events of the last century, and compared to all other economic and financial upsets since the Great Depression, it is surely the most significant. Like the Great Depression itself, these current financial problems, already dubbed the Great Recession, are proving to have profound social significance as well.

There are already many signs that the economic and social derangements caused by the crisis have affected the way that people think about their economic lives, their living habits, and their fundamental values. For example, we Americans have been notorious for our high consumption and low savings rate. Yet that behavior seems to have changed in just a few months. Contrary to our former love of conspicuous consumption, newspapers feature the joy of frugality that many of our fellow citizens claim to have discovered. Whether such new habits will persist will be revealed in time, and for the present these accounts may certainly occasion skepticism. However, such uncertainty about the meaning of the interesting times in which we live is characteristic of all evolving social phenomena of any significance. On any understanding . . .

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