Harga sebelum ongkos kirim: Rp. 204,000
Reviews:
"If you wonder how it could be possible for a subprime mortgage loan to bring the global financial system and the U.S. economy to its knees you should read this book. No one is better qualified to provide this insight and advice than Mark Zandi."
--Larry Kudlow, Host of CNBC's "Kudlow & Company"
"Throughout the financial crisis Mark Zandi has played two important roles. He has insightfully analyzed its causes and thoughtfully recommended steps to alleviate it. This book continues those tasks and adds a third – providing a comprehensive and comprehensible explanation of the issues that is accessible to the general public and extremely useful to those who specialize in the area."
--Barney Frank, Chairman of the House Financial Services Committee
"Every once in a while a book comes along that's so important, it commands recognition. This is one of them. Zandi provides a brilliant blow-by-blow account of how greed, stupidity and recklessness brought the first major economic crises of the 21st century --- and the most serious since the Great Depression. What makes this book so compelling are Zandi's two remarkable talents. He not only ranks among the smartest and most influential economists in the U.S., but he is also a hugely gifted writer who has crafted a fascinating and well-researched anatomy of the latest housing and financial debacle. This book should be required reading for students, business leaders and policymakers. Indeed, the more people who read it, the less likely it is we will repeat such a calamity in the future."
--Bernard Baumohl,
Managing Director of THE ECONOMIC OUTLOOK GROUP
and author of the best seller, The Secrets of Economic Indicators
“A must read for all who wish to understand the sources of today’s subprime crisis. Not only is this book a compelling read, but it also provides the basics to understand how subprime mortgages, a formerly obscure lending vehicle, could bring America’s financial system, long the envy of the world to its knees. Zandi demystifies the complexities of mortgage and securities markets and points in plain English to the forces that caused bad lending to crowd out good, putting homeowners and the nation’s economy at risk.”
--Susan M. Wachter, Co-Director -
Institute for Urban Research,
The Wharton School, University of Pennsylvania
"Mark Zandi is the Dean of macroeconomic analysis and forecasting. No one has followed the development of the current financial situation more closely than Mark. He understands the housing market as well anyone today and offers great insights into what is likely to come and how to prevent a repetition."
--Karl E. "Chip" Case, Professor of Economics,
Wellesley College
Excerpt from Chapter 1: Subprime Précis
Until recent events, few outside the real estate industry had even heard of a subprime mortgage. But this formerly obscure financial vehicle has grabbed its share of attention because of its ravaging effect on the U.S. economy and global financial markets.
Simply defined, a subprime mortgage is just a loan made to someone with a weak or troubled credit history. Historically, it has been a peripheral financial phenomenon, a marginal market involving few lenders and few borrowers. However, subprime home buyers unable to make good on their mortgage payments set off a financial avalanche in 2007 that pushed the United States into a recession and hit major economies around the globe. Financial markets and the economy will ultimately recover, but the subprime financial shock will go down as an inflection point in economic history.
Genesis
The fuse for the subprime financial shock was set early in this decade, following the tech-stock bust, 9/11, and the invasions of Afghanistan and Iraq. With stock markets plunging and the nation in shock after the attack on the World Trade Center, the Federal Reserve Board (the Fed) slashed interest rates. By summer 2003, the federal funds rate—the one rate the Fed controls directly—was at a record low. Fearing that their own economies would slump under the weight of the faltering U.S. economy, other major central banks around the world soon followed the Fed’s lead.
In normal times, central bankers worry that lowering interest rates too much might spark inflation. If they worried less this time, a major factor was China. Joining the World Trade Organization in November 2001 not only ratified China’s arrival in the global market, but it lowered trade barriers and accelerated a massive shift of global manufacturing to the formerly closed communist mainland. As low-cost Chinese-made goods flooded markets, prices fell nearly everywhere, and inflation seemed a remote concern. Policymakers even worried publicly about deflation, encouraging central banks to push rates to unprecedented lows.
China’s explosive growth, driven by manufacturing and exports, boosted global demand for oil and other commodities. Prices surged higher. This pushed up the U.S. trade deficit, as hundreds of billions of dollars flowed overseas to China, the Middle East, Russia, and other commodity-producing nations. Many of these dollars returned to the United States as investments, as Asian and Middle Eastern producers parked their cash in the world’s safest, biggest economy. At first
they mainly bought U.S. Treasury bonds, which produced a low but safe return. Later, in the quest for higher returns, they expanded to riskier financial instruments, including bonds backed by subprime mortgages.
Frenzied Innovation
The two factors of extraordinarily low interest rates and surging global investor demand combined with the growth of Internet technology to produce a period of intense financial innovation. Designing new ways to invest had long been a Wall Street specialty: Since the 1970s, bankers and traders had regularly unveiled new futures, options, and derivatives on government and corporate debt—even bonds backed by residential mortgage payments. But now the financial innovation machine went into high gear. Wall Street produced a blizzard of increasingly complex new securities. These included bonds based on pools of mortgages, auto loans, credit card debt, and commercial bank loans, sliced and sorted according to their presumed levels of risk. Sometimes these securities were resliced and rebundled yet again or packaged into risk-swapping agreements whose terms remained arcane to all but their authors.
Yet the underlying structure had a basic theme. Financial engineers start with a simple credit agreement, such as a home mortgage or a credit card. Not so long ago, such arrangements were indeed simple, involving an individual borrower and a single lender. The bank loaned you money to buy a house or a car, and you paid back the bank over time. This changed when Wall Street bankers realized that many individual mortgages or other loans could be tied together and “securitized”—transformed from a simple debt agreement into a security that could be traded, just as with other bonds and stocks, among investors worldwide.
Now a monthly mortgage payment no longer made a simple trip from a homeowner’s checking account to the bank. Instead, it was pooled with hundreds of other individual mortgage payments, forming a cash stream that flowed to the investors who owned the new mortgage-backed bonds. The originator of the loan—a bank, a mortgage broker, or whoever—might still collect the cash and handle the paperwork, but it was otherwise out of the picture.
With mortgages or consumer loans now bundled as tradable securities, Wall Street’s second idea was to slice them up so they carried different levels of risk. Instead of pooling all the returns from a given bundle of mortgages, for example, securities were tailored so that investors could receive payments based on how much risk they were willing to take. Those seeking a safe investment were paid first, but at a lower rate of return. Those willing to gamble most were paid last but earned a substantially higher return. At least, that was how it worked in theory.
By mid-decade, such financial innovation was in full frenzy. Any asset with a cash flow seemed to qualify for such slice-and-dice treatment. Residential mortgage loans, merger-and-acquisition financing, and even tolls generated by public bridges and highways were securitized in this way. As designing, packaging, and reselling such newfangled investments became a major source of profit for Wall Street, bankers and salesmen successfully marketed them to investors from
Perth to Peoria.
The benefits of securitization were substantial. In the old days, credit could be limited by local lenders’ size or willingness to take risks. A homeowner or business might have trouble getting a loan simply because the local bank’s balance sheet was fully subscribed. But with securitization, lenders could originate loans, resell them to investors, and use the proceeds to make more loans. As long as there were willing investors anywhere in the world, the credit tap could never run dry.
On the other side, securitization gave global investors a much broader array of potential assets and let them precisely calibrate the amount of risk in their portfolios. Government regulators and policymakers also liked securitization because it appeared to spread risk broadly, which made a financial crisis less likely. Or so they thought.
Awash in funds from growing world trade, global investors gobbled up the new securities. Reassured by Wall Street, many believed they could successfully manage their risks while collecting healthy returns. Yet as investors flocked to this market, their returns grew smaller relative to the risks they took. Just as at any bazaar or auction, the more buyers crowd in, the less likely they are to find a bargain. The more investors there were seeking high yields, the more those yields fell. Eventually, a high-risk security—say, a bond issued by the government of Venezuela, or a subprime mortgage loan—brought barely more than a U.S. Treasury bond or a mortgage insured by Fannie Mae.
Starved for greater returns, investors began using an old financial trick for turning small profits into large ones: leverage—that is, investing with borrowed money. With interest rates low all around the world, they could borrow cheaply and thus magnify returns many times over. Investors could also sell insurance to each other, collecting premiums in exchange for a promise to cover the losses on any securities that went bad. Because that seemed a remote possibility, such insurance seemed like an easy way to make extra money.
As time went on, the market for these new securities became increasingly esoteric. Derivatives such as collateralized debt obligations, or CDOs, were particularly attractive. A CDO is a bondlike security whose cash flow is derived from other bonds, which, in turn, might be backed by mortgages or other loans. Evaluating the risk of such instruments was difficult, if not impossible; yet investors took comfort in the high ratings given by analysts at the ratings agencies, who presumably were in the know. To further allay any worries, investors could even buy insurance on the securities.
Housing Boom
Global investors were particularly enamored of securities backed by U.S. residential mortgage loans. American homeowners were historically reliable, paying on their mortgages even in tough economic times. Certainly, some cities or regions had seen falling house prices and rising mortgage defaults, but these were rare. Indeed, since the Great Depression, house prices nationwide had not declined in a single year. And U.S. housing produced trillions of dollars in mortgage loans, a huge source of assets to securitize.
With funds pouring into mortgage-related securities, mortgage lenders avidly courted home buyers. Borrowing costs plunged and mortgage credit was increasingly ample. Housing was as affordable as it had been since just after World War II, particularly in areas such as California and the Northeast, where home ownership had long been a stretch for most renters. First-time home buyers also benefited as the Internet transformed the mortgage industry, cutting transaction costs and boosting competition. New loan products were invented for households that had historically had little access to standard forms of credit, such as mortgages. Borrowers with less than perfect credit history— or no credit history—could now get a loan. Of course, a subprime borrower needed a sizable down payment and a sturdy income—but even that changed quickly.
Home buying took on an added sheen after 9/11, as Americans grew wary of travel, with the hassles of air passenger screening and code-orange alerts. Tourist destinations struggled. Americans were staying home more, and they wanted those homes to be bigger and nicer. Many traded up.
As home sales took off, prices began to rise more quickly, particularly in highly regulated areas of the country. Builders couldn’t put up houses quickly enough in California, Florida, and other coastal areas, which had tough zoning restrictions, environmental requirements, and a long and costly permitting process.
The house price gains were modest at first, but they appeared very attractive compared with a still-lagging stock market and the rock-bottom interest rates banks were offering on savings accounts. Home buyers saw a chance to make outsized returns on homes by taking on big mortgages. Besides, interest payments on mortgage loans were tax deductible, and since the mid-1990s, even capital gains on most home sales aren’t taxed.
It didn’t take long for speculation to infect housing markets. Flippers—housing speculators looking to buy and sell quickly at a large profit—grew active. Churning was especially rampant in condominium, second-home, and vacation-home markets, where a flipper could always rent a unit if it didn’t sell quickly. Some of these investors were disingenuous or even fraudulent when applying for loans, telling lenders they planned to live in the units so they could obtain better mortgage terms. Flippers were often facilitated by home builders who turned a blind eye in the rush to meet ever-rising home sales projections.
Speculation extended beyond flippers, however. Nearly all homeowners were caught up in the idea that housing was a great investment, possibly the best they could make. The logic was simple: House prices had risen strongly in the recent past, so they would continue to rise strongly in the future.
Remodeling and renovations surged. By mid-decade, housing markets across much of the country were in a frenzied boom. House sales, construction, and prices were all shattering records. Prices more than doubled in such far-flung places as Providence, Rhode Island; Naples, Florida; Minneapolis, Minnesota; Tucson, Arizona; Salt Lake City, Utah; and Sacramento, California. The housing boom did bring an important benefit: It jump-started the broader economy out of its early-decade malaise. Not only were millions of jobs created—to build, sell, and finance homes—but homeowners were also measurably wealthier. Indeed, the seeming financial windfall for lower- and middle- American homeowners was arguably unprecedented. The home was by far the largest asset on most households’ balance sheet.
Moreover, all this newfound wealth could be readily and cheaply converted into cash. Homeowners became adept at borrowing against the increased equity in their homes, refinancing into larger mortgages, and taking on big home equity lines. This gave the housing boom even more economic importance as the extra cash financed a spending splurge.
Extra spending was precisely what the central bankers at the Federal Reserve had in mind when they were slashing interest rates. After all, the point of adjusting monetary policy is to raise or lower the economy’s speed by regulating the flow of credit through the financial system and economy. Nevertheless, by mid-2004, the booming housing market and strong economy convinced policymakers it was time to throttle back by raising rates.
Housing Bust
Signs that the boom was ending appeared in spring 2005, in places such as Boston and San Diego. After several years of surging house prices and nearly a year of rising interest rates, many home buyers simply could no longer afford the outsized mortgages needed to buy. Homes that had been so affordable just a few years earlier were again out of reach.
The frenzy began to cool. Not only did bidding wars among home buyers vanish, but many sellers couldn’t get their list prices as the number of properties for sale began to mount. Moreover, many sellers found it extraordinarily painful to cut prices. Flippers feared the loss of their capital, and other homeowners with big mortgages couldn’t take less than they needed to pay off their existing mortgage loans. Realtors were loath to advise clients to lower prices, lest they destroy
belief in the boom that had powered enormous realty fees and bonuses.
Underwriting Collapses
As they anxiously watched loan-origination volumes top out, mortgage lenders searched for ways to keep the boom going. Adjustablerate mortgage loans (ARMs) were a particularly attractive way to expand the number of potential home buyers. ARMs allowed for low monthly payments, at least for awhile.
Although borrowers have had access to such loans since the early 1980s, new versions of the ARM came with extraordinarily low initial rates, known as teasers. In most cases, the teaser rate was fixed for two years, after which it quickly adjusted higher, usually every six months, until it matched higher prevailing interest rates. Homeowners who took on these exploding ARM loans are the ones who are now losing their homes the most quickly.
Lenders also began to require smaller down payments. To allow home buyers to avoid paying mortgage insurance (generally required for large loans with low down payments), lenders counseled borrowers to take out second mortgages. For many such borrowers, the amount of the first and second mortgage together equaled the market value of the home, meaning there was no cushion in case that value declined. Moreover, although payments on the second mortgage may have been initially lower than the cost of the insurance, most loans also had adjustable rates, which moved higher as interest rates rose.
Such creative lending worked to support home sales for awhile, but it also further raised house prices. Rising prices together with higher interest rates (thanks to continued Fed tightening) undermined house affordability even more. Growing still more creative—or more desperate—lenders offered loans without requiring borrowers to prove they had sufficient income or savings to meet the payments. Such “stated income” loans had been available in the past, but only to a very few self-employed professionals. Now they went mainstream, picking up a new nickname among mortgage-industry insiders: liars’ loans.
By 2006, most subprime borrowers were taking out adjustablerate loans carrying teaser rates that would reset in two years, potentially setting up the borrowers for a major payment shock. Most of those borrowers had put down little or no money of their own on their homes, meaning they had little to lose. Many had overstated their incomes on the loan documents, often with their lenders’ tacit approval. By any traditional standard, such lending would have been viewed asa prescription for financial disaster. But lenders argued that as long as house prices rose, homeowners could build enough home equity to refinance before disaster struck.
For their part, home appraisers were working to ensure that this came true. Typically, their appraisals were based on cursory drive-by inspections and comparisons with nearby homes that had recently been sold or refinanced—in some cases, homes they themselves hadappraised. Lenders, meanwhile, were happy to see their subprime borrowers refinance; most subprime loans carried hefty penalties for paying off the mortgage early, and that meant more fee income for
lenders.
