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Understanding the Causative Factors of the Subprime Mortgage Crisis: An Examination of Current Literature

Though we are bombarded with facts and figures about the recent financial crisis continuously, our understanding of the crisis evolves daily. We are constantly hypothesizing and revising ideas about causes and consequences of the crisis – many of which will not be confirmed for years to come: U.S. Treasury Secretary Paulson, who was a former Wall Street banker, warned that the crisis is not short term and will be with us for a while (Callan, Grant, & Barber, 2007). In order to learn from past mistakes, it is critical that we attempt to develop a complete understanding of how and why this crisis occurred– the worst since the Great Depression, longer than those of 1973-1975 and 1981-1982 (Harding, 2010). This paper will examine and review current literature on the recent financial crisis, specifically, a history and overview of the financial innovations involved and a synthesis of the causes of the crisis.

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Callan, E., Grant, J., & Barber, T. (2007, September 12). No quick end to crisis, says Paulson. Financial Times.

Diamond, D. W., & Rajan, R. G. (2008). The Credit Crisis: Conejctures about Causes and Remedies. American Economic Review: Papers & Proceedings, 606-610.

Harding, R. (2010, September 21). Recession lasted 18 months in US, says panel. Financial Times, pp. 1, 9.

Kregel, J. (2008). Changes in the U.S. Financial System and the Subprime Crisis. The Levy Economics Institute Working Paper Collection, 1-20.

Lim, M. M.-H. (2008). Old Wine in New Bottles: Subprime Mortgage Crisis – Causes and Consequences. Journal of Applied Research in Accounting and Finance, 3-14.

Raineri, L. (2000). The Origins of Securitization, Sources of Growth, and Future Potential. In L. T. Kendall, & M. J. Fishman, A Primer on Securitization. Cambridge, MA: MIT Press.

Woyke, E. (2007, September 3). A History of Hubris. BusinessWeek, p. 32.

By Dennis Chao