Conclusion: Residential Capitalism and the International Political Economy
In August 2007 the global economy hit an iceberg composed of mortgage debt. $600 billion in U.S. subprime mortgages comprised the visible part of that iceberg, but several trillion dollars of mortgage and other assets packaged into CDOs constituted the invisible part of the iceberg. Like the Titanic, the global economy took on water slowly, but steadily, and over the following 13 months the rivets began popping off the financial system. One by one the bulkheads of off balance sheet entities called SIVs gave way, spilling negative financial liquidity into the investment banking compartments behind them and thence to commercial banks and insurance companies. Governments hastily moved banks to the front of the lifeboat queues, while pondering what to do about homeowners in steerage who were underwater on their mortgages. As with the Titanic, there had been abundant warnings that the market value of the housing collateral backing securities was well out of line with historic norms, yet no one seemed to doubt that houses provided riskless collateral for all manner of novel securities.
KeywordsHousing Market Aggregate Demand Housing Policy Private Pension Home Equity
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