Lessons from the Subprime Meltdown

Levy Economics Institute Working Paper No. 522

64 Pages Posted: 12 Dec 2007

See all articles by L. Randall Wray

L. Randall Wray

University of Missouri at Kansas City; Bard College - The Levy Economics Institute

Date Written: December 11, 2007

Abstract

This paper uses Hyman P. Minsky's approach to analyze the current international financial crisis that was initiated by problems in the U.S. real estate market. In a 1987 manuscript, Minsky had already recognized the importance of the trend toward securitization of home mortgages. This paper identifies the causes and consequences of the financial innovations that created the real estate boom and bust. It examines the role played by each of the key players - including brokers, appraisers, borrowers, securitizers, insurers, and regulators - in creating the crisis. Finally, it proposes short-run solutions to the current crisis, as well as longer-run policy to prevent it (a debt deflation) from happening again.

Keywords: Hyman Minsky, Financial Instability, Mortgage-backed Securities, Subprime

JEL Classification: E12, E32, E44, E58, E63

Suggested Citation

Wray, L. Randall, Lessons from the Subprime Meltdown (December 11, 2007). Levy Economics Institute Working Paper No. 522, Available at SSRN: https://ssrn.com/abstract=1070833 or http://dx.doi.org/10.2139/ssrn.1070833

L. Randall Wray (Contact Author)

University of Missouri at Kansas City ( email )

5100 Rockhill Road
Kansas City, MO 64110-2499
United States

Bard College - The Levy Economics Institute

Blithewood
Annandale-on-Hudson, NY 12504-5000
United States

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