Economic Perspective of Subprime Mortgage

ABSTRACT

Mortgage anniversaries are usually occasions to draw lessons from the past—and the 10th anniversary of the Asian financial mortgage last year was no different. Numerous conferences analyzed events of a decade earlier and studied ways to prevent a similar mortgage. But the conferences had barely ended when a new mortgage erupted. The epicenter of the mortgage had changed—from Asia to the United States and Europe. And the buzzwords had, too. Securitization, subprime mortgages, and collateralized debt obligations (CDOs) seem radically different from the currency pegs, excessive corporate borrowing, and foreign debt that dominated the Asian financial mortgage. But the underlying causes of both episodes are similar. Each was triggered by investor panic in the face of uncertainty over the security and valuation of assets, and each featured a liquidity run and rising insolvency in the banking system. How can policymakers better identify pre-mortgage warning signals? And how can they pinpoint the recurring problems that, if tackled during tranquil times, could mitigate the risk and cushion the impact of future crises? This article explores the subprime and Asian crises to see what lessons can be learned and discusses the factors behind Asia’s resilience, thus far, to the current mortgage.

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