1. The Mortgage Crisis PLS 480 Greed and Need Dr. Emerson

2. Sub Prime Problem Delinquency rate 2 tenths of 1 % in 1979 Today 2% (10 times higher) Moyer’s Report http://www.pbs.org/moyers/journal/071820 08/watch.html http://www.pbs.org/moyers/journal/071820 08/watch.html

3. Context: Regulate or Deregulate Constitution requires Congress regulate banks Congress leaves regulation to States. In 1913 FED authorized by Congress.

4. Little Regulation Until New Deal Unregulated stock market Bank’s heavily invested in stocks Deposits not insured

5. Regulation Glass Steagall Act FDIC Security & Exchange Commission Freddie Mac/ Fannie Mae HUD in 1960s

6. Deregulation Deregulation of S&Ls No regulation of “derivatives” Mortgages may be sold in fractions.

7. Deregulation Continues Savings/Loan Scandal Congress repeals Glass Steagall Act in 1999.

8. Federal Reserve Bank Policies Low interest rates Sub primes unregulated No regulation of ‘innovative financing’ No action regarding defaults

9. What is market response? Over price houses Piggy back sub primes with regulated ‘primes’ Little or no documentation of house/buyer

10. GAO Report  No piggyback and documentation 0% defaults  Piggyback OR little documentation 25-31%  Piggyback AND no documentation = 60%

11. Why No Demands by Lenders? Don’t know- ‘decoupling’ If fail then resell at higher price Loan is asset not borrower’s capacity to repay

12. Evidence Mortgage type and loss to homeowner and investor (Mortgage Banker Association) Spillover of Mortgage Subprime to Prime trends (First American Loan Performance) Stock Market Performance (Dow Jones Industrial Average) Jobs (Bureau of Labor Statistics) Recover of US (OECD)

13. Foreclosures By Mortgage Type Which type serves mortgage buyer AND homeowner? Difference between red bar, green and yellow?

14. Relationship of Prime to Sub-prime Spillover of subprime default on prime. Top line =subs but bottom line =primes

15. Stock Market Learning Curve Dips and peaks in stock market performance 2000- July 2009 Prior dip July 2003. Why?

16. JOBS Impact of policies on jobs (Bureau of Labor Statistics)

17. Recovery Comparison US System Recovery versus other Industrialized Democracies Red line US vs. France, Germany and Japan (OECD)

18. Break Be back in 10 minutes for the analysis

19. Finish this lecture: (7 groups) 1. Dem. Capitalist –explain 2. Dem. Capitalist –policy opt. 3. Dem. Socialist—explain 4. Dem. Socialist – policy opt. 5. Conservatives interpretation 6. Liberal interpretation 7. Madison interpretation/options

20. Democratic Capitalists Explain Democratic Capitalist explain evidence ---

21. Democratic Capitalists Future Policy Preference Reasoning

22. Democratic Socialist Democratic Capitalist explain evidence ---

23. Democratic Socialist Future Policy Preference Reasoning

24. Conservative Interpretation of Evidence and Meaning

25. Liberal Interpretation

26. Madison Model Interpretation/ Explanation Policy Options

27. Conclusion Justice is the end of government. It is the end [purpose] of civil society. It ever has and ever will be pursued until liberty is lost.. Madison, FP 51

28. Citations Alford, Rob (2003). What are the origins of Freddie Mac and Fannie Mae. Accessed August 28, 2008 at http://hnn.us/articles/1849.html. Bitner, Richard (2008). Inside the Subprime Debacle. U.S. News and World Report. 145 (2) 12. GAO Report (2007) Briefing to the Committee on Financial Service, House of Representatives. GPO: Washington, D. C.

29. Citations Jost, Kenneth (2008). Financial Crisis. CQ Researcher 18(18), 409-422 Phillips, Kevin (2002). Wealth and Democracy. New York: Random House. Reynolds, Maura. (2008). Mortgages: Loan troubles hit new heights: foreclosure rate climbs to 2% for the 4 th quarter. Home equity drop. Los Angeles Times. C-1.

30. Q and A

31. Postscript Define issue Use Library Resources, no Wikipedia (https://blackboard.csupomona.edu/webap ps/login/)https://blackboard.csupomona.edu/webap ps/login/ See http://www.csupomona.edu/~library/databa ses/politicalscience.html http://www.csupomona.edu/~library/databa ses/politicalscience.html

32. Postscript (cont.) Use correct APA citations. See: http://owl.english.purdue.edu/owl/resource /560/01/ http://owl.english.purdue.edu/owl/resource /560/01/ Looking for: timely, data (e.g. GAO), both sides of issue. NOT http://www.hillbillyreport.com/blog/bear_st earns// http://www.hillbillyreport.com/blog/bear_st earns//

33. Postscript (cont.) Analysis: Freedom, Liberty, Reason and Justice Conclusions and Opposition argument Power Point: Common Errors (http://www.youtube.com/watch?v=HLpjrHzgSRM) versushttp://www.youtube.com/watch?v=HLpjrHzgSRM http://www.youtube.com/watch?v=vXFi7AdhhGk&f eature=relatedhttp://www.youtube.com/watch?v=vXFi7AdhhGk&f eature=related (good example)

34. Sub-prime mortgages The end