Sub Prime Crisis in US: Emergence, Impact and Lessons

24 Pages Posted: 18 Nov 2008

See all articles by K. V. Bhanu Murthy

K. V. Bhanu Murthy

University of Delhi - School of Economics - Commerce Department; Delhi Technological University

A. T. Deb

Delhi University

Date Written: November 18, 2008

Abstract

The sub prime crisis in US is the result of excessive amounts of loans made to people who could not afford them and excessive amounts of money thrown into the mortgage arena by investors who were very eager for high return. The crisis represents the other side of a phase when a low rate of interest, rising home prices and mortgage securitization brought huge gains. A number of factors like legislations like Community Reinvestment Act, low rate of interest, mortgage brokers and lenders, rating agencies played their role in generating crisis. Three important dimensions of the sub prime saga relate to poor regulation of investment banks, relaxation in lending standards led by greed in a regime of unbridled competition and failure of the asset market to realize the dues from the defaulter. It once again brings home the fact that financial sector is distinctive in nature and can be exposed to unbridled and unregulated competition only at the cost of a complete peril.

Keywords: Mortgage, Housing bubble, Sub-prime Crisis, asset market failure

JEL Classification: E22, E32, E44, L58, G11, G12

Suggested Citation

Murthy, K. V. Bhanu and Taru Deb, Ashis, Sub Prime Crisis in US: Emergence, Impact and Lessons (November 18, 2008). Available at SSRN: https://ssrn.com/abstract=1303417 or http://dx.doi.org/10.2139/ssrn.1303417

K. V. Bhanu Murthy (Contact Author)

University of Delhi - School of Economics - Commerce Department ( email )

59 Vaishali Enclave
Pitampura
Delhi, 110034
India
+91 11 27667891 (Phone)

Delhi Technological University ( email )

Delhi
India

Ashis Taru Deb

Delhi University ( email )

College of Vocational Studies
Department of Economics
New Delhi, 110019
India

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