LOS ANGELES — In the past 18 months, millions of people have lost their homes or their home equity as U.S. mortgage markets tumbled in a freefall. How did we get here -- and how do we prevent this from ever happening again? Today, the Milken Institute releases the definitive collection of data and analysis on the mortgage meltdown and the ensuing financial crisis in a new book, The Rise and Fall of the U.S. Mortgage and Credit Markets: A Comprehensive Analysis of the Meltdown, published by John Wiley & Sons.
Milken Institute Senior Finance Fellow Jim Barth and his colleagues at the Milken Institute clearly illustrate the path that led to the current market collapse and how we can find our way out, explaining how both Main Street and Wall Street accumulated mounting risk and debt, while nobody kept an accurate score.
Dismissing the dramatic headlines and oversimplified sound bites that have dominated public debate, the Milken Institute team puts forth a straightforward explanation of what subprime mortgages are, who subprime borrowers are and how securitization — packaging loans into complex securities and selling them in the secondary market — expanded the mortgage market, but also opened the door to unprecedented risk.
Then the authors take you through a sobering assessment of how every other critical operation, including loan origination, regulation and supervision, Fannie Mae and Freddie Mac, leverage and accounting practices, and rating agencies, failed in turn, providing little safety from the building storm.
The book also lays out what the government has done to address the crisis so far and indicates that these actions have been largely reactive, not proactive and certainly not comprehensive. Rather, the authors advocate the need to address the bigger and more long-term issue of how to reform the structure of regulation and supervision to prevent a similar crisis from happening again. Several recommendations are explored that can assist policymakers as they shape the future of financial market regulation.
"If you want to read one authoritative, clear and balanced book on the subprime mortgage crisis, then read this important and timely volume by a terrific Milken Institute team of scholars," said Robert E. Litan, Vice President of Research and Policy at the Ewing Marion Kauffman Foundation and Senior Fellow at The Brookings Institution. "Policymakers should pay heed to their analyses and sensible recommendations."
The Rise and Fall of the U.S. Mortgage and Credit Markets: A Comprehensive Analysis of the Meltdown, by James Barth, Tong Li, Wenling Lu, Triphon Phumiwasana and Glenn Yago, is available from Amazon and Barnes and Noble.