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The Subprime Mortgage Crisis of America and Its Enlightenment to China

Author: HaoXiangSheng
Tutor: HuHaiOu
School: Shanghai Jiaotong University
Course: Finance
Keywords: Subprime mortgage crisis co-integration model monetary policy securitization transition mechanism
CLC: F224
Type: Master's thesis
Year: 2009
Downloads: 182
Quote: 0
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Abstract

From the breakout of subprime mortgage crisis, the capital markets around the world have been greatly impacted by the crisis. And now, the crisis even spreads to the real economy; for the reason of its’significant impact to America and the world, scholars and invests have put great energy on the research of the crisis. Most of current researches have focused on the introduction about the crisis, the operating mechanism of American real estate financial system and its impact to the financial industries and the macro-economy of the world. On the contrary, there’re few empirical studies about it, especially in China. So, I am trying best to make a empirical research on the thesis from the aspect of macro factors.In the beginning, the article makes a retrospect and summary about the papers on the subject of subprime mortgage crisis. And then, I make an introduction about the American real estate financing system and its operating mechanism, and analyze the history, current situation, scale and structure of American mortgage market. In the third part, the main point is about the scale and mechanism of subprime mortgage and its’derivatives; meanwhile, the article also analyze loses that this crisis brings to mortgagors, banks, Government Support Enterprises and credit card market. In the fourth sector, the article analyzes the reasons causing the crisis from the aspect of subprime mortgage industry and macro-factors. The asymmetrical information causes the interest confliction among different kinds of participants in the mortgage industry, especially in the subprime mortgage part, which leads to the misconduct of these participants. The macro-factors considered in the empirical study are Federal target rate and the index of house price in America. Based on the outcome of empirical research, I prove the relationship among these factors and the default rate of the subprime mortgage, which suggests that the chosen two factors made some contribution to the breakout of the crisis. The article also analyzes the causes from the aspect of regulation, the high-leverage strategy of investment bank and hedge fund. In the fifth part, I make a conclusion about the transition and evolvement stages of the crisis and explain the reason why Var-at-Risk and De-leverage aggravate the crisis. In the last, the article points out the main enlightenments to China.The innovations in this article are as follows. First, the exist research about the crisis aren’t systematic, while this paper presents a somewhat integrated outcome, and the thesis-selection is also an innovation. Second, the article uses asymmetric information theory to find out the interest conflictions in the subprime mortgage industry, which partly causes the breakout of crisis. Third, through the empirical study among the Federal target rate, Housing price index and default rate of subprime mortgage, the article proves that these two macro factors partly causing the crisis. In the end, the article also raises some innovative viewpoints about whether China needs to securitize mortgage or not.

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