Subprime Mortgages

Subprime Mortgage Crisis Outline

1) Introduction
a) Throughout time there have been cycles of economic prosperity and decline.
b) Great Depression.
c) Boom and Bust Theory.
i) (Gramlich)
d) Subprime mortgages have developed another bust period.
e) This crisis could have been avoided with greater education and planning by consumers and regulators.
2) Body
a) What is a subprime mortgage.
i) Zero subprime mortgages in 1993 to 625 billion in 2005(Gramlich)
b) What makes these loans so risky.
c) Why were so many given out.
i) Deregulation of banks
ii) Monetary control act of 1980(gramlich)
iii) Community reinvestment act(gramlich)
d) Why is this a problem and what makes this a crisis.
e) Educating regulators.
i) that "good bankers get a return on their money but also make sure that they get their money returned!"(Gandz)
ii) In addition, the intermediation process has become increasingly complex, posing difficulties both for market participants and policymakers(Hoenig)
a) Greed v. safe business practice.
i) (Gandz pg. 2)
ii) Another hypothesis is that they were so tempted and seduced by the seemingly endless opportunities to keep making money that they just failed to exercise duty of care(Gandz)
b) Securitization and shadow banking.
c) Educating consumers.
i) I find evidence that subprime lenders achieve greater market penetration in metropolitan areas with less educated residents,(imergluck)
d) The American dream.
i) Every American wants to own his own home.
ii) Driven people to work hard.
iii) Banks began offering subprime loans seemed like dream come true.
iv) Other benefits included better credit scores.
e) Living beyond one’s means.
i) (Gandz pg. 2)
ii) Loans focused on low income minorities(Gramlich)
f) Speculation. It’s the Depression all over again.
i) Consumers purchased homes and condominiums on margin and could not repay the mortgages when the home did not sell.
g) Economic effects.
h) Solutions.
2) Conclusion
a) Education could have greatly reduced the current depression.
b) Regulators would have seen the similarities to the conditions of the great depression.
c) Consumers would have understood the
d) "Those who cannot remember the past are condemned to repeat it"(Gandz)