Talk:Subprime mortgage crisis/Archive 1

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Archive 1

Archive 2

Archive 3

Archive 4

Editorial Suggestions

Below are some thoughts for improving this article structurally. I wanted to get some opinions before making these changes. Let me know what you think:

a) Moving the funds/corporate losses day-by-day sort of information to a "Subprime Crisis Timeline" article. We can summarize the type of impact in text in this article in a couple of paragraphs and refer to that article for those who want to track daily impacts.

b) Removing the Retail, Political, and U.S. dollar turmoil sections. These have minimal value as described and are NPOV problems in some cases. For example, I doubt Hillary Clinton is the only politician with ties to real estate companies.

c) Shortening the housing bubble portion, referring to that main article.

Farcaster 03:15, 2 November 2007 (UTC)

I agree. I think this article has grown too big in areas. Deet 10:51, 2 November 2007 (UTC)

Your proposals look like a solid start for tightening up this article. It's grown fast and skitters all over the place. WaterlessCloud 18:42, 4 November 2007 (UTC)

change that pic maybe- it's applicable, but too non-specific to be the main pic —Preceding unsigned comment added by 74.65.12.26 (talk) 03:41, 24 April 2008 (UTC)

Hyperbole in opening paragraphs?

I didn't get through the whole article but, reading the opening paragraphs (those above the TOC), they seemed to contain a great deal of charged language. I'm not an expert on Wiki guidelines (one reason I didn't just edit boldly :), but the verbiage seems to carry a great deal of political posturing and baggage, which strikes me as non-encyclopedic.

I don't have any concrete suggestions for changes, I'm mostly just floating this idea to see if "it's just me". Oliepedia 16:57, 26 October 2007 (UTC)

Can you be more specific? What part seems "loaded?" futurebird 17:38, 26 October 2007 (UTC)

I don't think the problem is hyperbole as much as it is simply inaccuracy. The 'crisis' we are experiencing now has its roots in lending practices which began changing in the late 90s and accelerated up until probably 2006. The cause of the problems we are seeing now is from poor underwriting practices which were not curbed by Alan Greenspan at the end of the Clinton Administration and the beginning of the Bush Administration. It is a gross oversimplification to assert that this crisis is an issue of what has happened in 2007 and 2008. I will be editing this article heavily to demonstrate my point. DavidMSA (talk) 02:57, 18 March 2008 (UTC)

Don't bother David. Your edits will be reversed if you try that without citing your sources carefully. This article has been carefully crafted by a series of 4 or 5 editors very carefully over the past few months.Farcaster (talk) 03:11, 18 March 2008 (UTC)

I will have better sources than The Econonmist, my friend. It is ridiculous to restrict this article to the endgame results which have manifested themselves over the last two years. I was trading FF options in the pit at the CBOT before this article was started. Its on. DavidMSA (talk) 03:26, 18 March 2008 (UTC)

The opening which you try to assert for the article is completely uncited, unsigned and is an oversimplification of the issue. It amuses me that the majority of these edits come from British sources, and the fact that The Guardian is citing this article as a 'source' says more about the quality of their media content than it does about the quality of this article. Where is the discussion about Northern Rock? DavidMSA (talk) 03:31, 18 March 2008 (UTC)

Coordinating changes about subprime meltdown

There are several related pages about the subprime meltdown, including subprime lending, collateralized debt obligation and Bear Stearns. Is there a way to coordinate changes across these pages so that everything gets updated consistently? Finnancier 06:06, 1 July 2007 (UTC)

It is my opinion that everything related to the subprime mortgage crisis be directed here and that this page be renamed "United States Subprime Mortgage Crisis." The other pages can reference this page.

copyright violations

It appears that the previous text of this article was largely pieced together from other undocumented sources identified by googling, including:

Many of these are ultimately coming from the Associated Press, Reuters, and similar news agencies. This appears to mostly be the work of 65.15.77.18 (talk · contribs · WHOIS), who unfortunately contributed > 80% of the text. As a result, I see no option but to decimate the article and start over. I have now done this by reducing the article to little more than its introduction. If people want to quote from the above sources, that might be a good place to start over, but we can't write articles by copying paragraphs of text from unacknowledged newspaper sources. Dragons flight 06:51, 11 August 2007 (UTC)

See also Wikipedia:Administrators'_noticeboard/IncidentArchive283#User:65.15.77.18. Dragons flight 07:12, 11 August 2007 (UTC)

Nice work, Dragons flight. I was pleasantly surprised to find such an extensive article on finance, a subject on which the wiki is weak. That should have been the first warning sign... - Banyan Tree 12:27, 11 August 2007 (UTC)

I too found it a good read, and a lot better than I was expecting. Now the article is next to useless. Perhaps, rather than blanking that text, its information should be properly incorporated into the article? I don't know enough about the subject to want to try doing that, but hopefully someone does... Bushytails 16:14, 11 August 2007 (UTC)

We can't just use text copied verbatim from copyrighted media articles, any more than we could just copy stuff from Brittanica verbatim if our article on the subject wasn't good yet. It sucks when an article gets axed, but if people hadn't stolen the content in the first place, this wouldn't have to happen. Nice work DF. --W.marsh 17:07, 11 August 2007 (UTC)

I don't know if other people noticed but the editor is still active as of recently. I've informed the editor of this discussion and also told them why their behaviour is incredibly bad. While my message may have been fairly stern, IMHO in cases like these was have to be stern Nil Einne 22:08, 11 August 2007 (UTC)

List of affected companies

After inserting specific companies which have been affected, and attempting to add more specifics, I believe it may be better to state that dozens of companies have been affected, with their names relegated to footnotes. The two companies I listed could then be stricken from the article as several dozen more could also be cited. It should be possible to begin this list from a diff of the article.

The role of S&P and Moody's might also be mentioned, as their ratings are retrospective; when the ratings were published, the liquidity crisis began. --Ancheta Wis 11:05, 11 August 2007 (UTC)

It might also be more useful to the article if a spectrum of conditions were mentioned. Subprime borrowers constituted 10% of the traditional market. They might have paid 8% or 9% on their loans rather than 6% or 7% on their loans. But 25% of the CDOs are subprime, currently. This percentage will likely fall to 10% of the CDOs.

Historically, the practice of catering to subprime borrowers arose from lending to millionaires, but the practice expanded to those who were not as creditworthy.

These notes come from the New York Times, Wall Street Journal, Investors Business Daily, the weeks preceding August 10, 2007. --Ancheta Wis 11:17, 11 August 2007 (UTC)

Article title

I think this article could do with a better name; someone suggested "United States Subprime Mortgage Crisis" above, but although it started in the US, it has affected share markets globally and prompted the intervention of many central banks in terms of adding cash to banking systems. Can anyone think of a good name? --bainer (talk) 14:07, 11 August 2007 (UTC)

I agree, the issue has expanded beyond just the subprime market. Perhaps "liquidity crisis" -- though that might be too alarmist. "Liquidity scare"? I guess time will tell. Ryanluck 15:42, 11 August 2007 (UTC)

I agree that the title is vague and, like Thebainer said, the scope of this is well beyond the US. Also, I would argue that this isn't really a liquidity scare as there is plenty of liquidity in the market but it's simply not being used due to fears of the value of certain investments invested in the subprime area (the lack of private investors (be it individuals or non-government banks) using liquidity is simply linked to the subprime 'crisis'). I would suggest an article title such as Subprime mortgage crisis of 2006-2007 or a similar title with a date included in the title to separate it from past or future similar events. Utopianheaven 01:37, 13 August 2007 (UTC)

subprime mortgage crisis is the handle of reference in many financial news reports here in Australia. It's the most useful for searching and yes, does affect us in the lending market and the Federal bank (our central bank) is adding cash in response ; I like the the final suggestion by Utopiaheaven for when it becomes a distinct entity for historic financial record. Julia Rossi 10:56, 13 August 2007 (UTC)

I totally agree with Utopianheaven. The title should be 2007 subprime mortgage financial crisis. Oidia 12:22, 16 August 2007 (UTC)

Now extended into 2008! Ryanluck (talk) 03:59, 20 March 2008 (UTC)

European cash injection

The Main Page says "The European Central Bank injects €94.8 billion of liquidity into the European financial system". This article says "The European Central Bank (ECB) injected €61 billion". Which one is correct? The BBC citation in this article supports €61 billion, but maybe this amount has been updated by today? —msikma (user, talk) 17:01, 11 August 2007 (UTC)

Both are correct, they did two injections.--rdnk 20:56, 12 August 2007 (UTC)

Excuse me, two injections? In that case, is the €94.8 billion the more up-to-date (more correct) sum of the two injections, or would the real "total" have to include €61 billion "plus" €94.8 billion? Maybe we are getting to the point that each "injection amount" should be accompanied by a date? (or, perhaps a "running total" amount, accompanied by an "as-of" date?) Mike Schwartz 01:47, 14 August 2007 (UTC)

As I understand it, there have been several emergency "refi" operations by the ECB. One on Thursday, August 9, for one day only, to the amount of EUR 94 bln, which had to be repaid on Friday, August 10. On Friday a three-day refi was issued for some 60+ billion, which ran until Monday, August 13. On Monday a refi for some 7.7 billion was issued, again fotr one day. On Tuesday alle mergency liquidity assistance was ended. (On the onther hand, I understand that the 14-day facility issued on Tuesday was fairly generous.) So one should not add up these amounts. Best regards, MartinD (on the Dutch Wikipedia)

MartinD is right, the so-called injections by the ECB are one-day operations and one cannot add up the amounts. We must find time to correct the article. Ridow 20:16, 22 September 2007 (UTC)

copyvio content

The copyvio content is here if someone wants to get an idea for improving the article. WAS 4.250 17:49, 11 August 2007 (UTC)

Some numbers on ARMs

NY Times reported in 2006 that about $400B of ARMs was reset in 2006 and some $1000B of ARMs are to be reset in 2007[1]. Some googling revealed from $1100B to $1500B of ARMs are to be reset in 2007-2008. I wonder if more exact figures could be determined and incorporated into the article. (Igny 05:54, 12 August 2007 (UTC))

I wonder if Wikipedia can use a chart from [2] (Igny 00:38, 17 August 2007 (UTC))

Great Depression

This sounds a lot like what happened back in the 1930s, with people buying more and more on credit, and then being unable to pay the piper when the time came to do so. Think we're headed for another "Great Depression"? RingtailedFox • Talk • Stalk 16:15, 12 August 2007 (UTC)

This is not a place for forum, but I saw papers which marked similarities between 1920s, 1987, end of 1990s, and 2007. After each crisis new safeguards were put in place to avoid dire situations. (Igny 16:48, 12 August 2007 (UTC))

Yeah this isn't a forum, but this situation is very similar to what occurred in 1998 with the Russian financial crisis or in 1989 when the junk bond market collapsed. Clinevol98 19:33, 12 August 2007 (UTC)

This is not going to be a repeat of the great depression so long as world war or pandemic does not occur. But it is a major world wide financial event that will take a decade to sort out. Avoiding destructive behavior like war between major powers and promoting productive behavior like employment through whatever lie is needed is the essence of modern government. WAS 4.250 02:22, 13 August 2007 (UTC)

You might find it was the case that the Great Depression ended with the coming of the world war, see "Rearmament and recovery" section of that article. Here in Australia the treasurer of the central bank predicts that it may take 20 years for the property market to fully recover. Now, that could be depressing. As for financial crises such as the Asian one of 1997, they appear to be about value of currency doing something fatal, rather than a knock-one bad credit effect. A collapse is a bad fall but the economic machinery can be very different. Julia Rossi 11:08, 13 August 2007 (UTC)

There was no pandemic and no war which led to the Great Depression. The second World War is actually cited as one of the many factors which led to the END of the Depression. Justin Bacon 20:23, 15 August 2007 (UTC)

Liquidity Injection

I would be interested in learning more about the Fed's response to this that seems to be referred to as 'liquidity injection'.

The Federal Reserve "injecting" money into the financial system came in the form of repurchase agreements. On Friday, specifically, the Fed came in and bought some mortgage-backed securities that had basically frozen up due to a lack of liquidity. The injections by the European Central Bank I believe were loans made to banks at a discount rate in order to provide liquidity. Clinevol98 22:54, 12 August 2007 (UTC)

Graphs?

Would it be possible to visualize the financial situation in graphs?

most of our newspapers (Australia) are offering graphs that just go jaggedly downwards – for example see Financial Review Aug 11, 07. I don't know of any free use ones, but maybe somebody does.Julia Rossi 10:52, 13 August 2007 (UTC)

Banks injecting money - Where?

Does anyone know where exactly the government banks are injecting money? I don't understand that part. --Savedthat 18:31, 13 August 2007 (UTC)

They are basically loaning money to primary dealers, banks that the Fed conducts their open market operations with. Clinevol98 22:18, 13 August 2007 (UTC)

Does this amount to the FED printing money or increasing the money supply? Is this money that the Fed actually has gathered from revenues or is it borrowing and thus increasing the money supply? Sandwich Eater 16:06, 14 August 2007 (UTC)

According to Brad DeLong, "the monetary base in the North Atlantic economies is 7% higher" after the August 9 central bank actions. The banks accepted mortgage backed securities as collateral for these loans. The central banks set the period of time in which the loans must be repaid, ranging from 24 hours to one month. See http://delong.typepad.com/sdj/2007/08/central-banking.html. Accepting the MBSs as collateral is curious, considering that they seem to have had zero value at the time. SMaykrantz 04:45, 7 September 2007 (UTC)

The money comes out of their own coffers I'm assuming, and, yes, it does increase the money supply because the money is coming out of a Fed vault and into the public. Clinevol98 16:55, 14 August 2007 (UTC)

It seems likely then that the sub-prime lending crisis has to either result in (a)massive inflation or (b)interest rate increases, one or the other, or both. Is that adequately covered in the results forecast section? Surely there must be coverage and references to site as appropriate for an encyclopedia. Sandwich Eater 22:34, 17 August 2007 (UTC)

I traded FedFund Options at the CBOT and I have also worked for Countrywide FSL (subprime) as an Account Executive. A brief summary of the FOMC method for disbursing cash to the Federal Reserve Banking System member banks:

1) The FOMC sets a 'target rate' for 30-day Fed Funds (hereafter called FedFunds or FF) at its scheduled meetings, or changes the rate between meetings when it deems necessary to prevent undesirable economic issues. The latter method was prevalent before the advent of the meeting calendar in the late 1990s and seems to be more acceptable to the FOMC as evidenced by intermeeting rate cuts in January and March of 2008.

2) Every day the New York Fed (hereafter NY Fed) makes FedFunds available to member banks. The NY Fed usually tries to keep the 'actual rate' close to the target rate, essentially to keep themselves from looking like they don't have control over the money supply. In order to do this, they must either make more cash available or take cash out of the federal reserve system. If there is equal demand on both sides of the target rate then the NY Fed doesn't need to do anything.

3) The spread between the FF 'target rate' and 'actual rate' is referred to as 'slippage' in industry parlance. This slippage can vary quite a lot above and below the target rate, relatively speaking.

4) When the NY Fed allows member banks to borrow FF, the member banks are then allowed to issue notes with their names on it. If you look at US currency it will show which member bank issued the bills.

5) Member banks are allowed to loan out (or use to service their exposure to the Credit Default Swap market) $10 for every $1 they have in reserve. It is easy to see the inherent price inflation and currency devaluation which result from such an arrangement. For comparison's sake, the average individual might be allowed to have 2 to 1 leverage in their Ameritrade account to use for margin trading.

6) This cycle goes on every day and the FOMC adjusts its FF target rate at its scheduled meetings to meet the needs its determines are important for the US economy (ostensibly, anyway).

So in conclusion, the FOMC gives member banks the 'right' to print more currency and since this is the only legal tender in the US, US currency amounts to Fiat Money. It is worth as much or as little as the FOMC decides it will be worth. 'Printing Money' is one way to say it but I think everyone can see the loaded nature of the term. If there is anything unethical about the arrangement, it is the disparity between the privileges accorded to member banks versus the lack of recourse accorded to private citizens who are forced to use the currency in every facet of their lives.

I hope this helps to clarify things a little bit, I will try to find some material from the FOMC itself explaining the process. It isn't very accessible in the manner I described it above, LOL. Seriously though, I would recommend finding an out-of-print copy of 'The Alpha Strategy' by John Pugsley. It is an excellent read and the discussion of how the FOMC perpetuates price inflation through control over the Fiat money supply in this country is the best I have read. DavidMSA (talk) 04:16, 18 March 2008 (UTC)

recuperate vs. recoup

I checked with "http://www.onelook.com/?w=recuperate&ls=a", and sure enough, the use of the word "recuperate" is OK in a context like "without a means to recuperate losses". However, there it seems to be a tertiary meaning of the word "recuperate", whereas, according to "http://www.onelook.com/?w=recoup&ls=a", the meaning intended here is the primary meaning of the word "recoup". Hence, I would like to suggest that we seriously consider changing "without a means to recuperate losses" to instead say "without a means to recoup losses". (to whom am I making this suggestion? I guess, to those who might know more about the original intent here, or might have some other kind of expert knowledge - beyond that available from onelook.com - about which word to use). (actually, anyone who reads - vs. just adding to - discussion or "Talk:..." pages, is welcome to be my audience, and any feedback would be welcome.) Mike Schwartz 18:15, 13 August 2007

Oops! the above has been changed - in the article. Does this mean that this "section" of the "talk" page should now be deleted? (or should it be archived first?) Mike Schwartz 21:44, 20 August 2007 (UTC)

History and issues versus cause and effect

I moved three paragraphs from the body to the lead which allowed the restructuring from a cause and effect division into a structure that is based on chronology/history/time and issues. Dividing the interactions and issues into these are causes and these are effects does not fit the source data. One thing leads to another and they are all interrelated. WAS 4.250 12:45, 16 August 2007 (UTC)

This is a good point and should not be overlooked. While the overinflated housing market in some parts of the US did not help the situation, they certainly did not cause the lax underwriting principles that paved the way for the problems we are seeing today. DavidMSA (talk) 04:32, 18 March 2008 (UTC)

Expectations and forecasts

I retitled this section to emphasize that we are just reporting what notable people say and not ourselves summing up what the possible outcomes will be. WAS 4.250 12:54, 16 August 2007 (UTC)

First Magnus goes down

http://www.forbes.com/feeds/ap/2007/08/16/ap4028546.html

http://www.bizjournals.com/phoenix/stories/2007/08/13/daily51.html

http://firstmagnus.com/

"This is a prime example of the argument that central bank behavior destroys the myth of the free market"

The "Role of world banks..." section, after saying about how much money the various banks are releasing into the markets, contains the text:

This is a prime example of the argument that central bank behavior destroys the myth of the free market

and then has a blockquote from a website which complains that people who say that the free market is a good are the same people who applaud the actions of such banks.

I don't understand this sentence: what is the "this" which is a prime example? Does it mean

1) that the banks' actions show them to believe the argument/point of view that central bank behaviour destroys the myth of the free market? If so, how does it show this, and what's the relevance of the quote? It's not at all clear to me what the banks' opinions of the free market are.

Or 2) that the quote is a prime example of this argument/point of view? If so, why are we including it when we haven't mentioned this POV earlier in the section, how is it relevant, and why are we giving space to one POV and not other ones? Marnanel 18:57, 17 August 2007 (UTC)

It's an opinion piece that is only encyclopedic if the person giving their opinion is notable or expert in regards to the subject matter of the opinion. Perhaps a better quote covering the same territory can be found from someone who is a recognized expert - or a reliable source found that indicates this guy is such an expert. WAS 4.250 21:23, 17 August 2007 (UTC)

__________ The original quote is potentially very useful, but it is a bit confused as it stands. The speaker apparently means to say something along the lines of "this is a prime example of why arguments against central-bank intervention are flawed." His point seems to be, and here the speaker is correct, that many in business or industry often contend that government interference in the market is inherently wrong, and they fall back on slogans about how Smith's "invisible hand" will somehow smooth over bumps better than a clumsy government can.

The latter is a familiar claim during market highs, that government "meddling" will just create more problems than it solves. The speaker is trying to draw attention to the fact that those same free-market advocates are not shy about asking for government intervention during crises like this one. (A bit like the teenager who demands that mom stay out of his life, until he needs tuition money, when he then accuses her of "not caring" if she tells him to get a job.)

Hence, the accusation is relevant to this article, because some do appear to want it both ways: when they stand to get rich by trading in extremely risky debt/loans, they demand that the government mind its own business and not try to regulate them. But once everything hits the fan, those same institutions and investors tend to blame the government for not doing enough to bail out the financial markets, typically by tinkering with interest rates or injecting $$$.

For these reasons, the meaning behind the original quote is very relevant to the gist of the article. Surely many around the world with a stake in this crisis are going to point out that government safeguards, including restrictions on how people could finance a home (even when in some cases the banks hardly bothered to see if the home-owners were employed) might have at least minimized the problem.

How to work that sentiment into the article while retaining the objective tone will be something of a challenge. But to the extent that the article attempts to suggest possible causes of the sub-prime crisis, and not merely document its course, the ambivalent relationship between the wealthy and government regulations would have a natural place in that discussion. C d h 16:17, 18 August 2007 (UTC)

While all that is true, Wikipedia is an encyclopedia and not a blog; so a reliable published source that attributes such opinions (or others) to a noteable person or recognized expert is needed. WAS 4.250 16:30, 18 August 2007 (UTC)

Changes within the subprime mortgage industry

One thing I see missing from this article is the effect that this is having on currently existing operating mortgage lending institutions. I don't think a detailed run-down is needed on what exactly has changed, but the market for certain types of mortgages has disappeared. If this is helpful, I can dig up some information. The-bus 18:46, 21 August 2007 (UTC)

Billions in Put Options purchased betting that the market will crash by 9-21 by 30-50%??!

plz add this http://www.anomalicresearch.com/optioncall.html 4.5 billion aint less.whoever betted knows what he is doing. —Preceding unsigned comment added by 122.163.35.157 (talk) 12:51, August 27, 2007 (UTC) for skeptics who dont trust alternative sites http://www.financialnews-us.com/?page=ushome&contentid=2448565379 —Preceding unsigned comment added by 122.163.35.157 (talk) 12:57, August 27, 2007 (UTC)

That's actually a pretty standard transaction. It's part of an options spread Watson Ladd 01:55, 5 September 2007 (UTC)

H3 report

Should we put something in about the recent H3 report showing banks failed to meet reserve requirements recently? Watson Ladd 01:55, 5 September 2007 (UTC)

The Economist's report (PDF) and the BIS comments on a depression, should be added to "Expectations.."

The Economist has a lengthy PDF report Australian PDF 42-pages on subprime which lays out these three scenarios:

The Economist Intelligence Unit released a 42-page report on the effects of the US sub-prime mortgage sector, and says there is a 30 per cent chance the US will fall into a recession.

Global outlook: The good, the bad and the ugly The main risk to the world economy is a deflationary spiral in asset prices The tremors in financial markets have gone far beyond their beginnings in the US subprime mortgage sector, and indeed far beyond the borders of the US. The full impact on the markets, and the repercussions on the global economy, remains unclear, but we can sketch out three broad scenarios: • Scenario 1. The Economist Intelligence Unitçs central forecast, to which we attach a probability of 60%, sees the impact being contained by timely monetary policy action, with only a modest effect on the global economy. • Scenario 2. Our main risk scenario, with a 30% probability, envisages the US falling into recession, with substantial fallout in the rest of the world. • Scenario 3. Should the US enter recession, another, darker scenario arises: that corrective action fails, and severe economic repercussions cascade from the US into the world economy with devastating effect. We attach only a 10% probability to this outcome, but the potential impact is so severe that it warrants careful consideration. Since scenario 1 informs our regular output and scenario 3 has a low probability, the bulk of this report focuses on scenario 2

Also, the Bank of International Settlements said a depression is possible. http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2007/06/25/cncredit125.xml 99.245.173.120 11:35, 6 September 2007 (UTC)

Proposed article title change to "2007 credit crisis"

What are the thoughts on possibly changing the title of this article to a broader title, such as the "2007 credit crisis?" The current title seems a little narrow in scope. Publicus 15:03, 17 September 2007 (UTC)

Strongly support : The credit crisis did not affect just sub-prime bonds. Aftermath affected even AAA and AA banks. Companies such as Merrill Lynch saw their credit spreads (interest rate paid on loans / bonds) increase by 100-200 basis point (100 basis point = 1 %). Also the sub-prime normally refers to mortgage loans. However the crisis also affected high yield low quality corporate and sovereign bonds . --DuKot (talk) 05:06, 23 November 2007 (UTC)
Support. I'd be happy with 2007 Banking Scare, credit crises being less encyclopedic. Given the evidence of reduced global growth from the IMF et. al. I don't think it can be classed as a crisis yet. To get a sensible all embracing name, perhaps we need to agree on the underlying causes. I'd say that for the UK & US - I can't speak for anywhere else - we're in a cyclical transition from a decade of abnormally low real interest rates (loose, easily available credit) to normalised real interest rates (tighter, less easily available credit). Some stupid people, be they borrowers, lenders or investors, mistakenly took a view that interest rates would remain low, and are now having difficulty meeting interest payments on assets that are decreasing in value. As a separate issue, but with possibly the worst possible timeing, credit ratings agencies, upon whom investors rely, have been found to have made basic errors when assessing the quality of the underlying assets and ability to repay, and new worldwide accounting standards, Basel II, are forcing banks to increase their capital base and/or reduce lending. -- John (Daytona2 · talk) 10:33, 23 November 2007 (UTC)
Oppose. The genesis of the knock-on effects you identify all stem from subprime. In terms of including the year, it is quite apparent that most of the mortgage defaults will actually occur in 2008. We could wait until January and change it then. Keep in mind that the U.S. banks will actually report their dismal 4th quarter results during January. I actually prefer The United States subprime mortgage crisis (much like the Great Depression has no dates); does this article title need a date -- has their been another subprime crisis? Deet (talk) 02:14, 24 November 2007 (UTC)
Support - it has become wider - Northern Rock was not about US subprime --Rumping (talk) 01:33, 27 November 2007 (UTC)

But it sort of was about US subprime, which caused the liquidity crunch that hit NRK.Deet (talk) 02:08, 29 November 2007 (UTC)

SuOppose if we change the content to cover the entire credit market. Do we have such an article already? Do we delete the old one or create two? Radio Guy (talk) 02:54, 29 November 2007 (UTC)

Strongly Oppose. This crisis is rooted on subprime mortgages, therefore removing it from the title is confusing. IMO the title should be 2007 subprime mortgage crisis or 2007 mortgage bubble. 2007 Banking Scare is just horrible, aren't you joking?

@-DuKot:IMO the credit crisis is simply consequence, not its cause. The cause of hte credit crisis are the mortgages, so the name mortgages has to be present on the title IMO.

EconomistBR (talk) 18:48, 10 December 2007 (UTC)

Comment. I have started to see my suggested name, United States subprime mortgage crisis, in more media articles and analyst write-ups. Deet (talk) 23:08, 12 December 2007 (UTC)

Comment. @Deet. Good , I like your name, United States subprime mortgage crisis is fine IMO

EconomistBR (talk) 04:09, 14 December 2007 (UTC)

Okay, we're in 2008 now, so I'm going to propose my suggestion for a poll:

The following discussion is an archived discussion of the proposal. Please do not modify it. Subsequent comments should be made in a new section on the talk page. No further edits should be made to this section.

The result of the proposal was no move. Andrewa (talk) 13:56, 8 January 2008 (UTC)

Requested move

2007 subprime mortgage financial crisis → United States subprime mortgage crisis — more accurate as source of problems even internationally and title does not need a date similar to the Great Depression as there has only been one such crisis —Deet (talk) 11:08, 1 January 2008 (UTC)

Survey

Feel free to state your position on the renaming proposal by beginning a new line in this section with *'''Support''' or *'''Oppose''', then sign your comment with ~~~~. Since polling is not a substitute for discussion, please explain your reasons, taking into account Wikipedia's naming conventions.

Oppose. Even though it started in United States it had global effect. Using 'United States' instead of '2007' will give misleading idea that article is only covering crisis as felt in one place. Callmederek (talk) 19:52, 4 January 2008 (UTC)
Oppose. (a) It's global. (b) It was a crisis that started in 2007. (c) It's what people will search for. Bearian (talk) 22:44, 7 January 2008 (UTC)
Oppose. We must wait, after the crisis ends scholars and intelectuals will come up with the apporpriate name, just like happened with 9/11. After 9/11's dust settled, people chose the name 9/11 not during it. So IMO we should wait.EconomistBR (talk) 23:08, 7 January 2008 (UTC)

Discussion

Any additional comments:

The above discussion is preserved as an archive of the proposal. Please do not modify it. Subsequent comments should be made in a new section on this talk page. No further edits should be made to this section.

Link to Autoandhomeinsurance.org

I've removed the link to Subprime crisis: implications for the insurance industry, as did Flowanda, but I'm documenting this here to avoid an edit war. Should this link be included? Finnancier 12:21, 8 October 2007 (UTC)

I agree, the link is uNnecessary, it adds very little new information and it's only 3 paragraphs long. The only really relevant piece of information IMO is:

both by law and by the nature of their business, insurers generally limit themselves to the low-risk end of the investing universe.

I agree with Finnancier and with Flowanda. The link should be removed.

EconomistBR 14:20, 8 October 2007 (UTC)

Simplified the Intro

Sometimes ordinary people, the kind of people like me who took out essential loans with low hardly moving interest payments and didn't notice that another way of getting screwed was that the principle was quietly getting bigger and bigger, read Wikipedia seeking enlightenment on a subject, and too often an "expert" gets to give information that is beyond comprehension. Anyway, now that the government may be stepping in, it's time to heed these people, and to that end, I've tried to lighten up a little on the introduction so that a person could stop at that point. There are two sides to the crisis certainly, but in my opinion the consumers' side is always given in simple terms (greed etc.) and the lenders' side is so full of Wall Street gibberish designed, often, to obscure or conceal their much greater greed. Still, greed makes the world go round, I guess. Accounts for the dizziness. JohnClarknew 08:08, 7 December 2007 (UTC)

Rewriting major parts of the article

I'm trying to do a major rewrite since this article really doesn't give a good description of what happened, and what all of the moving parts where.

Roadrunner (talk) 12:51, 16 December 2007 (UTC)

Thanks RR, there's far too much unencyclopedic stuff. Wikipedia:RECENT has some wise words -

"The "ten-year test" is one simple thought experiment which may be helpful: "In ten years will this addition still appear relevant? If I am devoting more time to it than other topics on the page, will it appear more relevant than what is already here?" For example, in 2004 devoting more time on George W. Bush's page to the ongoing election rather than his previous one may have seemed logical. However, in ten years, when neither event is fresh, readers will desire the emphasis be balanced between both."

"After "recentist" articles have calmed down, the instigating news story has dropped from the Main Page and the front pages of newspapers, and the number of edits per day has dropped to a reasonable minimum, concerned Wikipedians ought to initiate comprehensive rewrites. Most articles can be condensed to keep only the most important information, the wider notable effects of an event, and links to major issues to which the article is related. Much of the timeline content and day-to-day updates with minor details can safely be excised."

-- John (Daytona2 · talk) 14:17, 16 December 2007 (UTC)

Take your shot Roadrunner. Just split your edits into several entries so we can review or modify specific ones easily if need be. I did the last major rewrite about a month ago.Farcaster (talk) 23:13, 16 December 2007 (UTC)

NAACP and racism

I think we could do a better job of explaining the reasons for the law suit. I've added some information, but it would be a good idea to show the parallels between subprime loans and redlining, although scholarly analysis of thee factors is only now emerging. We need to explain that is is systemic, rather than "conscious" racism at work-- What are some good sources that talk about this issue? futurebird (talk) 20:06, 19 December 2007 (UTC)

I don’t see how this relates to the “role of financial institutions in causing of the 2007 subprime mortgage financial crisis”. It seems like an impact of the crisis not a cause and should be moved to the impact section. It is a criticism of subprime lending and should be in that article. (Halgin (talk) 19:30, 21 December 2007 (UTC))

Okay that makes some sense-- although the NAACP suit is in response to this most recent wave of loans, so I think we should at least mention that. futurebird (talk) 05:26, 23 December 2007 (UTC)

Impact on women

We might want to look in to this too:

Women and the subprime crunch Boston Globe 10/22/2007

futurebird (talk) 20:15, 19 December 2007 (UTC)

German banks (IKB and WestLB) writedowns are missing

I've searched everywhere but apparently german state banks are having their losses compensated so they are not posting writedowns.

Reuters in August estimated that IKB standed to lose "up to a fifth of its $23.99 billion subprime investment" or $4.8 billion in writedowns. http://www.reuters.com/article/gc06/idUSL0345210820070803

~But I can't find it anywhere EconomistBR (talk) 18:28, 21 December 2007 (UTC)

Removed? Why?

Some subprime lending practices have raised concerns about mortgage discrimination on the basis of race.^[1] African Americans and other non-whites are being disproportionately led to sub-prime mortgages with higher interest rates than their white counterparts. .^[2] Even when median income levels were comparable, home buyers in minority neighborhoods were more likely to get a loan from a subprime lender. This may in some cases be due to other objective metrics such as credit ratings or past bankruptcies.^[1] However, in July 2007, a report published by the Federal Home Loan Mortgage Corporation showed that minority borrowers pay higher annual percentage rates on mortgage loans than non-minorities with equal income and equal credit risk. In 2005, African American borrowers paid an average of 128 basis points more for loans than their white counterparts.^[3] In the subprime market, the difference was greater: 275 basis points more. This has lead the NAACP to file a class action suit against a large group of lenders charging racism in lending practices.^[3] However, home ownership among black Americans has increased from 42% to 48% since the mid 1990's, with the overall rate of U.S. home ownership increasing from 64% to 69%. Subprime loans were a significant contributor to this increase.^[4]

^ ^a ^b Manny Fernandez (October 15, 2007). "Study Finds Disparities in Mortgages by Race". The New York Times. Retrieved 2007-12-16. Cite error: The named reference "nytimes" was defined multiple times with different content (see the help page).
^ NAACP Fights Loan Discrimination
^ ^a ^b NAACP: Bailout Mortgage Plan Is Too Little Too Late for the Majority of African American Borrowers; Amended NAACP Class Action Filed Today Naming Additional Lenders By: Marketwire Dec. 18, 2007
^ http://www.economist.com/specialreports/displaystory.cfm?story_id=9972531

Why was this removed? It's sourced and on-topic? I don't understand. If soild sources say that racism played a role in reckless lending and the meltdown we ought to mention what those sources say. futurebird (talk) 05:24, 23 December 2007 (UTC)

I agree with the removal, with all respect, this article is about a financial crisis not about WHO bought subprime mortgages or racism in America. It escapes the scope of the article and it belongs somewhere else.

Subprimes were sold at alarming rates, bundled together with prime mortgages and sold as low risk securities (CDOs, ABSs and MBSs) at the height of the housing bubble. This is the article's scope, its core.

This article talks less about the failure of rating agencies than about baby boomers, which are mentioned in this article. It makes no sense at all.EconomistBR (talk) 16:38, 23 December 2007 (UTC)

This should definitely be reinstated into the article. There was widespread direction of blacks and non-whites into subprime mortgages who would have otherwise qualified for prime mortgages. Several branch managers at Countrywide FSL resigned when emails to this effect became public in Autumn 2005. RESPA and other industry restrictions are mainly borne out of a desire to reduce such discriminatory lending practices. I will find out which managers resigned in CA before I edit the article. DavidMSA (talk) 13:13, 18 March 2008 (UTC)

The housing bubble collapsed not the housing market

Had the housing bubble continued to inflate we wouldn't be having this crisis, so the bubble had to collapse in order for the crisis to begin.

We may add a different terminology like: "with end" or " with the burst" IMO we should make clear the housing bubble has ended. EconomistBR (talk) 01:17, 29 December 2007 (UTC)

By the way, home prices are the prices of another cost of living. When it goes up, it is BAD news for consumers. If we apply the sick logic of the David Lereah's of the world to the oil market, we should be cheering that oil prrices are climbing. Radio Guy (talk) 23:35, 30 December 2007 (UTC)

Hello BR...appreciate your many helpful edits to this article. The housing bubble article is also very helpful. I just thought the word "collapse" was a bit sensationalistic, especially in the intro. Things haven't "collapsed" yet in my view, although they very well might. Perhaps we can work the housing bubble portion in later in the intro as well? Something like: "Recent events signify that the U.S. housing bubble may be deflating, as home prices have begun to decline in many markets." I didn't want to overplay the bubble portion, as this is a complex topic in itself subject to lots of interpretation.Farcaster (talk) 01:37, 29 December 2007 (UTC)

Something as critical as that needs to be directly sourced from a highly respected source. See Wikipedia:Reliable sources. imo you're in danger of breaching Wikipedia:No original research and Wikipedia:Neutral point of view -- John (Daytona2 · talk) 19:47, 29 December 2007 (UTC)

According to the Wall Street Journal, "It's now conventional wisdom that a housing bubble has burst." According to Treasury Secretary Paulson, "[T]he housing decline is still unfolding and I view it as the most significant risk to our economy." I've added the appropriate citations and the Wall Street Journals "conventional wisdom" language. Frothy (talk) 23:03, 30 December 2007 (UTC)

Funny how for a year and a half, NAR shill David Lereah kept saying that there has never been a nationwide downturn in home prices. Seeming to say it will never happen. We've now had the case-Shiller index decline for more than one year's worth of nationwide home prices. Radio Guy (talk) 23:33, 30 December 2007 (UTC)

I support the expression "bursting" I think it's less extreme than "collapse". And it's not POV.

When does any bouble burst?? When prices begin to fall. The Dot com bubble burst on March 10, 2000 after this date prices were never as high.

EconomistBR (talk) 00:51, 31 December 2007 (UTC)

Yes Treasury Secretary Paulson stated, "[T]he housing decline is still unfolding and I view it as the most significant risk to our economy." according to the reference at "[3]. However, he says nothing about the housing bubble bursting in the reference. This reference should be removed from the statement about the housing bubble bursting.

(Halgin (talk) 16:23, 1 January 2008 (UTC))

Quotes from Bernanke speech

The Quotes from Bernanke speech in the "The Federal Reserve" subsection of "Actions to manage the crisis" currently says: "In early 2008, Ben Bernanke said: "In all likelihood, the housing contraction would have been considerably milder had it not been for adverse developments in the subprime mortgage market. Since early 2007, financial market participants have been focused on the high and rising delinquency rates of subprime mortgages, especially those with adjustable interest rates (subprime ARMs). Currently, about 21 percent of subprime ARMs are ninety days or more delinquent, and foreclosure rates are rising sharply...Although poor underwriting and, in some cases, fraud and abusive practices contributed to the high rates of delinquency that we are now seeing in the subprime ARM market, the more fundamental reason for the sharp deterioration in credit quality was the flawed premise on which much subprime ARM lending was based: that house prices would continue to rise rapidly. When house prices were increasing at double-digit rates, subprime ARM borrowers were able to build equity in their homes during the period in which they paid a (relatively) low introductory (or “teaser”) rate on their mortgages. Once sufficient equity had been accumulated, borrowers were often able to refinance, avoiding the increased payments associated with the reset in the rate on the original mortgages. However, when declining affordability finally began to take its toll on the demand for homes and thus on house prices, borrowers could no longer rely on home-price appreciation to build equity; they were accordingly unable to refinance and found themselves locked into their subprime ARM contracts. Many of these borrowers found it difficult to make payments at even the introductory rate, much less at the higher post-adjustment rate. The result, as I have already noted, has been rising delinquencies and foreclosures, which will have adverse effects for communities and the broader economy as well as for the borrowers themselves"

It is not about the Federal Reserve of actions to manage the crisis. It is about the problem, it causes, and impact. Most of what he says is already stated in this article. It should be moved to other sections of the article. (Halgin (talk) 04:51, 12 January 2008 (UTC))

I'll back you up in taking it out HalginFarcaster (talk) 05:56, 12 January 2008 (UTC)

Seconded -- John (Daytona2 · Talk · Contribs) 23:48, 12 January 2008 (UTC)

I agree, it can be taken out. Nice quote though, I really liked this bit:

Once sufficient equity had been accumulated, borrowers were often able to refinance, avoiding the increased payments associated with the reset in the rate on the original mortgages. —Preceding unsigned comment added by EconomistBR (talk • contribs) 14:57, 13 January 2008 (UTC)

Does it seem ridiculous to anyone else that unelected officials like Ben "Shalom" Bernanke get to make unilateral proclamations regarding the US economy and every one nuts all over themselves trying to pay attention to what he has to say? Listening to him speak definitely makes me lose respect for Princeton as an academic institution, at the very least. DavidMSA (talk) 20:08, 24 March 2008 (UTC)

Real time update tag

Should the tag remain? What else is dated and could use an update? EconomistBR been doing a nice job with the losses.Farcaster (talk) 03:30, 17 January 2008 (UTC)

Thank you for the compliment. I am simply trying to keep up with all of you.

The user Kendrick7 who added that tag didn't explain why he tagged the article. So based on this fact I think we could remove it. EconomistBR (talk) 05:32, 17 January 2008 (UTC)

A tag to indicate it is a current event (i.e. {{current}} ) is more appropriate. — Deon Steyn (talk) 07:57, 17 January 2008 (UTC)

Template:Current is only to be used when edit conflicts are occurring, to warn others. I discovered Template:Inuse and Template:Underconstruction yesterday for use when trying to prevent other editing during periods when you're making long edits. Cheers -- John (Daytona2 · Talk · Contribs) 11:44, 17 January 2008 (UTC)

Reported but unconfirmed write-downs total $6.8 bln

Source: http://www.financialnews-us.com/?page=ushome&contentid=2349568128

WestLB- $520 mln
Commerzbank- $430 mln
Unicredit- $402 mln
Northern Rock- $574 mln
HBOS- $1,061 mln
Societe Generale- $340 mln
Lloyds TSB- $ 409 mln
Kaupthing- $126 mln
Investec- $74.1 mln
KBC Bank- $14.8 mln
BNP Paribas- $340 mln

Source: http://news.bbc.co.uk/2/hi/business/7191795.stm

IKB Deutsche Industriebank- $2.6 bln
BNP Paribas- $439 mln

Could anyone confirm and add those numbers?? I don't think is wise for me to add them because I can't confirm the write-downs anywhere.EconomistBR (talk) 17:55, 17 January 2008 (UTC)

I don't think we're through with it all, yet. Better wait till the end of the ride. --Rwst (talk) 12:16, 25 February 2008 (UTC)

Funny thing how all of these non-American banks have so much exposure to this mess, isn't it? Not really, maybe the better word is ironic... DavidMSA (talk) 20:10, 24 March 2008 (UTC)

rename

This article has been renamed from 2007 subprime mortgage financial crisis to subprime mortgage crisis as the result of a move request.

The following is a closed discussion of the proposal. Please do not modify it. Subsequent comments should be made in a new section on the talk page. No further edits should be made to this section.

The result of the proposal was - move to clearer name as spans years - if it becomes known as something else in the future then it can be moved again. Keith D (talk) 12:12, 6 February 2008 (UTC)

Should the title simply be "subprime loan crisis"? As for uniquely identifying it, this is the first one and if regulators learn the right lessons it should be the last. So far it's spanned from 2007 into 2008. "Financial" seems redundant with "subprime mortgage." Also there was a proposal above that it be "United States subprime mortgage crisis but it's clearly very international in scope. Finally not all the loans were actually mortgages, they all get lumped together. Potatoswatter (talk) 05:10, 25 January 2008 (UTC)

Please follow the procedures in Wikipedia:Requested_moves, thanks -- John (Daytona2 · Talk · Contribs) 15:38, 25 January 2008 (UTC)

Yeah, I thought there might be more folks here for discussion, but it looks like a formal request is better. Potatoswatter (talk) 19:48, 25 January 2008 (UTC)

I really think we should stick with this name until history or experts decide on a name after this crisis is over.

Until then we could create page redirects, which would be of great help for the readers. How many page redirects do we have so far? EconomistBR (talk) 16:31, 25 January 2008 (UTC)

The popular name already seems to be "the subprime mortgage crisis." Google helps here. Potatoswatter (talk) 19:48, 25 January 2008 (UTC)

poll

2007 subprime mortgage financial crisis → subprime mortgage crisis — The crisis now spans 2007-2008, and "financial" is redundant with "subprime mortgage." Of ~750k ghits for "subprime crisis", ~600k hit "subprime mortgage crisis" but only ~280k hit "subprime crisis" -"subprime mortgage crisis". So the briefer terminology is pretty ubiquitous. "subprime mortgage financial crisis", the present name (stripping "2007"), only gets ~10k ghits. —Potatoswatter (talk) 01:15, 26 January 2008 (UTC)

Survey

Feel free to state your position on the renaming proposal by beginning a new line in this section with *'''Support''' or *'''Oppose''', then sign your comment with ~~~~. Since polling is not a substitute for discussion, please explain your reasons, taking into account Wikipedia's naming conventions.

Support per nom, and mortgage seems to be the usual and most significant word used to describe the crisis looking through Google SERPS for subprime. —Preceding unsigned comment added by Joeblakesley (talk • contribs) 11:29, 2 February 2008 (UTC)

Support. We don't need the date in the title, as there's no need for disambiguation (there's only been one subprime mortgage crisis, as I understand it), and 'financial' seems pretty redundant. Terraxos (talk) 03:00, 6 February 2008 (UTC)

Discussion

Any additional comments:

The above discussion is preserved as an archive of the proposal. Please do not modify it. Subsequent comments should be made in a new section on this talk page. No further edits should be made to this section.

Image show violates Wikipedia No original research?

Does the image constitute original research? Does this image violate Wikipedia:No original research rule? All material in Wikipedia must be attributable to a reliable, published source. May not contain any new analysis or synthesis of published material that serves to advance a position not clearly advanced by the sources. (Halgin (talk) 00:41, 30 January 2008 (UTC))

Hello Halgin: My intent is to explain what is actually in the article already, using a simple diagram. My intent was not to put anything in there that isn't attributed to sources in the article. Is there a particular aspect that is beyond what we have sourced in the article? I can modify; let me know.Farcaster (talk) 05:06, 30 January 2008 (UTC)

Halgin does have a point. Do we have any sources that explain the Subprime Crisis as it is being described by the diagram? If not, how big a problem that is? The diagram's points are definetely all sourced.

I find the diagram very useful. But the diagram gives the same weight to the many variables that caused the crisis.

Also the effects of this crisis haven't yet ended, but that's the impression given by the diagram, we just learned this week that new home sales for 2007 were the weakest in two decades. http://ap.google.com/article/ALeqM5jsanM66tszKz1zFq0LOG4XvWS7zAD8UF7UD00

I am really glad though to see that you Farcaster took the time to create the diagram. EconomistBR (talk) 06:38, 31 January 2008 (UTC)

We three seem to be among the primary editors of this article so I'll defer to you guys. I would say that since the diagram elements are sourced and that I'm not creating new synthesis of ideas (e.g., the relationships among the elements are also sourced, at least that was my intent) we should be OK. If I tried to cite particular elements as more important than others I might be on thin ice. I will work soon on an updated diagram that indicates an "as of date" and shows that the effects/results feed back to each other, rather than being linear left to right. This will help indicate we're in the middle of this thing. Will that work for you guys?Farcaster (talk) 18:03, 31 January 2008 (UTC)

I'm new at this. The source is the article or sources that are in the article? As of what date? We need to understand where it came from and when. (Halgin (talk) 23:01, 31 January 2008 (UTC)).

IMO, this diagram should show the causes and the consequences of the Subprime Crisis in one single time-line "continuum". IMO, with all respect, the current diagram is fundamentally wrong because it fails to show how the many variables affected each other causing really complex interactions. Do you, Farcaster and Halgin agree?

Farcaster, your great initiative to summarize the entire subprime crisis in a diagram is a difficult undertaking and it will create controversies, so don't take offense over this.EconomistBR (talk) 01:26, 1 February 2008 (UTC)

I created this updated image.

Let me know what you think. It tries to show the linkage of the key elements. It also says that many such linkages not shown (see bottom left) and the arrows at top right now go both directions, to show feedback. Plus, it's got more colors! If you like better, I'll include. The other has the virtue of simplicity, although I agree with Econonomist BR that it may be too simple. Halgin, what Econ and I are saying regarding sourcing is that each box in here could be traced to a source in the article if we had to. Since the reference # keep moving, I didn't want to label each one.Farcaster (talk) 17:35, 2 February 2008 (UTC)

Can you make a list of your sources for the image on the page with the license? If it is in the article it should have a source. The image should use the same sources as the article. (Halgin (talk) 00:58, 5 February 2008 (UTC)).

IMO this new version is better. It's now possible see how some aspects of the crisis interacts with the others and how the consequences create their own consequences.

The NY Times stated in that the Fed interest rate cuts of 1.25% are a response to the threat of recession: the central bank acknowledged that it is now far more worried about an economic slowdown than rising inflation, and it left open the possibility of additional rate reductions.http://www.nytimes.com/2008/01/30/business/30cnd-fed.html?hp
Is the box "Bankruptcy/Bailout of Weaker Lender" a consequence of the credit crunch or a consequence of the rising foreclosures or neither of them?
Why are there two boxes indicating Recession Risk?
"Investigation/Litigation" on what?
Why doesn't the diagram mention that "Between 1997 and 2006, American home prices increased by 124%" as a cause of the housing bubble?
Isn't the "Legislative Stimulus Package" and "Sotck Market Volatility" a response to the Credit Crunch/Recession Risk?
This quote "By January 2008, the inventory of unsold new homes stood at 9.8 months based on December 2007 sales volume, the highest level since 1981" indicates that the "Excess Home Inventory" happened after the "Housing Bubble Burst" and not prior to it.

EconomistBR (talk) 07:56, 5 February 2008 (UTC)

The above commentary is not intended to insinuate that your diagram totally problematic, to the contrary, it's simply meant to ask tough question about a diagram in order to provide inspiration for improvement. EconomistBR (talk) 08:55, 5 February 2008 (UTC)

If seeking inspiration, the BBC has a neat flowchart "THE NEW MODEL OF MORTGAGE LENDING" at the top of its article on the issue, comparing normal to subprime lending and showing how it goes wrong: http://news.bbc.co.uk/2/hi/business/7073131.stm Brisvegas 10:48, 5 February 2008 (UTC)

Good feedback. I'll have a version 3.0 for you by Monday. Need to think about this one a bit.Farcaster (talk) 04:48, 6 February 2008 (UTC)

In testimony by US Federal Deposit Insurance Corporation (FDIC) Chairman, before the Committee on Financial Services, U.S. House of Representatives, about their efforts to address the problems faced by subprime mortgage borrowers simular images were presented. It is Public Domain. :) (Halgin (talk) 01:16, 6 February 2008 (UTC)).

New Diagram

Nice one Halgin! This would good in the subprime lending and securitization articles. We might also include here as a thumbnail in the background section which covers some of the details of subprime lending. Up to you.Farcaster (talk) 04:48, 6 February 2008 (UTC)

Good ,another diagram, I really like diagrams they give bearings whenever I am reading something complicated. I looked at it and I would favor adding this new diagram as well. But IMO:

Some of the words are too small
Why don't the words CDOs, MBAs appear on that diagram?
I don't think that separating "Lender" from Mortgage Broker is necessary, since in many instances they are the same agent.
Mentioning "Servicer" I also thought as not necessary, the idea of a some sort of intermediary between the investor and the borrower is easily understood and common sense, IMO.

⇨ EconomistBR ⇦ Talk 23:49, 6 February 2008 (UTC)

Impact vs Causes of the crisis.

The following is an impact not a cause of the crisis.

According to the S&P/Case-Shiller housing price index, by November 2007, average U.S. housing prices had fallen approximately 8% from their 2006 peak. However, there was significant variation in price changes across U.S. markets, with many appreciating and others depreciating. The price decline in December 2007 versus the year-ago period was 10.4%. Sales volume (units) of new homes dropped by 26.4% in 2007 versus the prior year. By January 2008, the inventory of unsold new homes stood at 9.8 months based on December 2007 sales volume, the highest level since 1981. Further, a record of nearly four million unsold existing homes were available. Housing prices are expected to continue declining until this inventory of surplus homes (excess supply) is reduced to more typical levels. As MBS and CDO valuation is related to the value of the underlying housing collateral, MBS and CDO losses will continue until housing prices stabilize.

I moved something like it from the Cause section to the Impact section a few days ago and it is back in the Cause section. Am I missing something? (Halgin (talk) 01:12, 5 February 2008 (UTC)).

Hi Halgin...appreciate your help as always. We are both right; I put it earlier in the article because it is also a major cause of the crisis. The price decline in housing (due to overbuilding; supply exceeded demand) is probably what started this all off. Re-read the short op ed piece from Greenspan (the source of the quote at the end). Oversupply caused prices to start dropping; there are record levels of housing inventory out there, which by definition means housing prices must fall to offset the excess supply. Declining home prices kept people from refinancing, so they began defaulting due to the adjustments on their ARM that they couldn't get out of. I am concerned that if we have the housing price and inventory info towards the bottom of the article, we miss an important part of the cause. As Econ BR pointed out, many of the variables in this crisis feed back on each other. So we are both correct in that this is both a cause and impact of the crisis. As prices drop, people cannot refinance and default. This causes more price declines (if they sell in desperation and market psychology shifts). I would prefer to either leave as is or de-emphasize the text in the impact section section.Farcaster (talk) 03:39, 5 February 2008 (UTC)

IMO Halgin is right on this one, the subprime crisis caused a reduction in Home Sales greater than the reduction in the number of Housing Units completed in 2007 resulting in this excess of home inventory. This excess in home inventory seems to assure that the crisis will continue, but that doesn't change the fact that it is a consequence and an impact of the subprime crisis. Farcaster, you are right when you say that the price decline in housing begun as a result of excess of home inventory , but IMO this scenario of excess of home inventory will continue for some time otherwise home prices would start to move up and not down.

But there is also the issue of date, could we still be having Subprime Crisis causes in January 2008?

Farcaster, you first quoted and correctly thought about this "many of the variables in this crisis feed back on each other" I wished I had thought of it, but i didn't. We are definitely seeing this here, a consequence feeding itself.

This site has valuable statistics on Housing Units (starts, under construction and completed):

http://www.census.gov/const/www/newresconstindex.html EconomistBR (talk) —Preceding comment was added at 08:50, 5 February 2008 (UTC)

There is nothing in the paragraph linking the data provided to a cause of the crisis. If the data about current and past decreases home price was put in the same paragraph as the statement that housing prices started depreciating … making refinancing difficult, it would be related to a “cause”. The forecast of continue declining home prices needs to be link to the Role of Borrowers in Causing the crisis. So you are saying borrowers are defaulted because of they expect more declines housing prices? Financial institutions created MBS and CDO not borrowers. (Halgin (talk) 00:29, 6 February 2008 (UTC)).

I think we have a "chicken and egg" type quandary here. I see two ways we can explain this, each with drawbacks if we tried to advocate one over the other:

Scenario #1: ARM adjustments cause people to default and foreclose. We have a clear trend of increasing foreclosures. This is what creates the excess supply of housing, which then causes prices to decline rapidly. This is the point of view in the BBC article (http://news.bbc.co.uk/2/hi/business/7073131.stm) Brisvegas referenced above. The problem with this scenario is that as long as the housing prices continued to go up / bubble expanded, the default issue did not arise. People could flip the houses for a profit or otherwise refinance and the ARM adjustment was avoided. This scenario excludes the initial price shock/decrease we need to explain what started all this. This leads us to scenario 2.

Scenario #2: Home builders were building homes at a very high rate, expecting the boom to continue. However, rising interest rates and the long history of price increases made people think a correction was coming and they rather quickly stopped buying, creating an initial surplus of homes. This provides the initial price shock, as home prices stop climbing and decline marginally. The ARM adjustments then cause the defaults and foreclosures (because refinancing or selling was contingent on home appreciation) and the rest follows scenario 1 above. The housing "ponzi scheme" (Ted Koppel on NPR) collapses. Like stock prices, rising interest rates eventually bring investment prices down, whether bonds, stocks or homes in this case. People fought the Fed and the Fed won, so to speak.

I suspect the truth is somewhere in between. I have seen no data that proves either scenario. One or the other might have prevailed, depending on the market. For example, in this article (http://www.businessweek.com/bwdaily/dnflash/content/oct2007/db20071024_022437.htm?chan=investing_investing+index+page_real+estate) it appears that Chicago home builders just overbuilt (scenario 2). I think both probably had something to do with this. I think assuming everyone just started defaulting misses the price bubble bursting. To Halgin's point, we can clarify this better, like we do in the first paragraph. I'll take a cut at that.Farcaster (talk) 04:31, 6 February 2008 (UTC)Farcaster

After thinking about it, I believe that more important than the exact location of the paragraph on the text is the fact that the paragraph with valuable information is actually present, based on this I will not pursue this issue further. ⇨ EconomistBR ⇦ Talk 00:01, 7 February 2008 (UTC)

Article Rating

I would like to nominate this article as a Importance Rating as "HIGH". Versus other articles currently given a high importance rating, this definitely needs some attention. This is not to say that the article is any less than a B-GA right now, as I will review the criteria over the next fewe day, but those rating boxes ought to get filled in ASAP. T.o.anon84 (talk) 05:49, 14 February 2008 (UTC)

I'd just like to say that this is a good article from my point of view. Many well-summarized points. Just look at "Role of government and regulators". Only 5 sentences as of this comment, and each one makes a distinct, clear, and easily understood point. I just think this has been an excellent collective job. Deet (talk) 21:40, 5 March 2008 (UTC)

This article is a long way from being encyclopedia-worthy. I would say its somewhere between reading InTouch Weekly and The Guardian, at this point. Maybe in the future it will be worth a high rating but certainly not in this condition. If this were a baseball game the crisis would be in about the top of the 6th inning. The crediti default swaps haven't yet come into play and Goldman Sachs still hasn't made their move. DavidMSA (talk) 05:00, 18 March 2008 (UTC)

Too Long/Intro Tag

I've knocked it down to 4 paragraphs and fewer words per the standard. Is it short enough? Did I remove anything essential we should put back in? —Preceding unsigned comment added by Farcaster (talk • contribs) 04:32, 18 February 2008 (UTC)

Not sure why there should be so many different numbers to support "Defaults and foreclosure activity increased dramatically." in the introduction.

By October 2007, 16% of subprime loans with ARMs were 90 days delinquent or in foreclosure proceedings, roughly triple the rate of 2005. By January of 2008, this number increased to 21%. During 2007, nearly 1.3 million U.S. housing properties were subject to foreclosure activity, up 79% versus 2006. As of December 22, 2007, a leading business periodical estimated subprime defaults would reach a level between U.S. $200-300 billion.

It is confusing. (Halgin (talk) 00:02, 19 February 2008 (UTC)).

It's not really confusing (unless you're saying that the reason it's there in the first place is confusing) but I agree with you in principle. The necessary citations (4 & 5) should merely appear after the word "dramatically" and all the details would be available to the reader by following them. In any event, I don't think it belongs in the intro. Maybe wait a few weeks then remove it. Zain Ebrahim (talk) 13:05, 21 February 2008 (UTC)

[nytimes-1] Manny Fernandez (October 15, 2007). "Study Finds Disparities in Mortgages by Race". The New York Times. Retrieved 2007-12-16. Cite error: The named reference "nytimes" was defined multiple times with different content (see the help page).

[2] NAACP Fights Loan Discrimination

[toolittle-3] NAACP: Bailout Mortgage Plan Is Too Little Too Late for the Majority of African American Borrowers; Amended NAACP Class Action Filed Today Naming Additional Lenders By: Marketwire Dec. 18, 2007

[4] ttp://www.economist.com/specialreports/displaystory.cfm?story_id=9972531

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