Essay about Us Subprime Mortgage Crisis
EMBA 683 - Fall 2011
Case: U.S. Subprime Mortgage Crisis - Policy Reactions
1) What are the causes behind the U.S. Subprime mortgage crisis? Is one cause more responsible than another?
The first and more important factor that lead to the subprime mortgage crisis was governments creation of Freddie and Fannie. This move by the government to intercede the private financial industry sector eventually lead to the US government being the largest lender of mortgages in the US. In addition to the flawed notion that government should determine who and how a borrow qualifies for mortgage loan is disconcerting in and of itself, but this also marked a fundamental change in banks models of originate and hold …show more content…
The Treasury invoked numerous fiscal policies as a means of action to the subprime crisis such as nationalizing Freddie & Fannie, creation of TARP, assisted mergers of failing institutions and even in some cases purchase of preferred shares of failing financial organizations.
I think TARP was a program that forced the stronger banks to "co-subsidize" the weaker banks and the radical utilization of this program was extremely flawed as Paulson left office and replaced by Geithner.
4) Advice to Washington
While all of the monetary and fiscal policies may have helped to stabilize the financial industry we have still yet to address the heart of the matter which is housing. We have a fundamentally flawed housing industry that is currently being subsidized by government. Freddie & Fannie need to be overhauled and all of the policies and regulations that resulted from this crisis targeted the wrong sector. While retail/commercial banks played a role, the real issues still remain with the Investment Banks that were largely responsible for the creation of CDO's and credit default swaps. We don't need more regulation, we need the right regulation.
Bernake was quoted in the case by saying, "Prepared to employ all available