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Subprime Debt Imbroglio: Risks–Rewards of Financial Sophistication

  • Satyendra Nayak
Chapter

Abstract

Money, banking, and credit are in a constant evolutionary process. From coins and currency notes to digital money, from branch banking to universal banking, and later to Internet banking and now mobile phone banking, it is evolving fast with technology and innovation. The result is great convenience, lower cost, and instant service. Low-cost and high-speed digital money has been a great boon to the banking system and economy. While banking has taken great strides in technology, there has also been ongoing innovation on the credit side of banking. The subprime mortgage lending and its securitization were one such innovation intended to enlarge home ownership by directing credit toward tangible asset creation. Through the process of subprime lending and its securitization, a record amount of credit was channeled through the US and global banking, investment banking, and financial services industry to the housing and real estate sector from 2001 until the breakout of the crisis in 2008. Despite several safeguards, the system collapsed due to excessive exposure and a confluence of adverse economic trends.

Keywords

Real Estate Hedge Fund Credit Default Swap Banking Crisis Credit Derivative 
These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.

References

  1. 1.
    Zandi M. Financial shock: a 360° look at the sub-prime mortgage implosion and how to avoid the next financial crisis. Upper Saddle River: Pearson Education Inc., Free Press; 2009.Google Scholar
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    Dodd C. Opening statement at the hearing on mortgage market turmoil: causes and consequences, US Senate Committee on Banking, Housing and Urban Affairs, March 22, 2007. In: Lewis M, editor. Panic: the story of modern financial insanity. New York: Penguin Books; 2008. p. 309.Google Scholar
  3. 3.
    Galbraith JK. The great crash 1929. England: Penguin Books Ltd.; 1975. p. 46–7.Google Scholar

Copyright information

© Springer India 2013

Authors and Affiliations

  • Satyendra Nayak
    • 1
  1. 1.Center for Advanced Banking and Finance StudiesICFAI Business SchoolMumbaiIndia

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