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US Financial Debt Crisis: A SOC Approach
Jerome L. Stein
Published: 2011

The financial crisis was precipitated by the mortgage crisis. A whole structure of financial derivatives was based upon the ultimate debtors, the mortgagors. Insofar as the mortgagors were unable to service their debts, the values of the derivatives fell. The financial intermediaries whose assets and liabilities were based upon the value of derivatives were very highly leveraged. Changes in the values of their net worth were large multiples of changes in asset values. A cascade was precipitated by the mortgage defaults. In this manner, the mortgage debt crisis turned into a financial crisis.

eBook Contents

Introduction - The importance of the housing/mortgage sector to the financial sector - Characteristics of the Mortgage Market - The Stochastic Optimal Control Analysis - Interpretation of Optimal Debt Ratio - Empirical Measures of an upper bound of the Optimal and actual debt ratio - Early Warning Signals of the Crisis - The Market delusion - The Shadow Banking System: Leverage and Financial Linkages – References

eBook License: Copyrighted (Personal Use Only)

Free PDF eBook - 425 Kb - 34 pages