In his exceedingly timely and innovative look at the
ramifications of the collapse of the U.S. housing market, Herman M.
Schwartz makes the case that worldwide, U.S. growth and power over
the last twenty years has depended in large part on domestic
housing markets. Mortgage-based securities attracted a cascade of
overseas capital into the U.S. economy. High levels of private home
ownership, particularly in the United States and the United
Kingdom, have helped pull in a disproportionately large share of
world capital flows.
As events since mid-2008 have made clear, mortgage lenders
became ever more eager to extend housing loans, for the more
mortgage packages they securitized, the higher their profits. As a
result, they were dangerously inventive in creating new mortgage
products, notably adjustable-rate and subprime mortgages, to
attract new, mainly first-time, buyers into the housing market.
However, mortgage-based instruments work only when confidence in
the mortgage system is maintained. Regulatory failures in the
American S&L sector, the accounting crisis that led to the
extinction of Arthur Andersen, and the subprime crisis that
destroyed Lehman Brothers and Merrill Lynch and damaged many other
big financial institutions have jeopardized a significant engine of
Schwartz concentrates on the impact of U.S. regulatory failure
on the international economy. He argues that the "local" problem of
the housing crisis carries substantial and ongoing risks for U.S.
economic health, the continuing primacy of the U.S. dollar in
international financial circles, and U.S. hegemony in the world
Subjects: Political Science
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