lending market and its aftermath reflects K&A paradigm: format should be to explain the KAM model, then identify the initial dislocation triggering the bubble,Describe the Aliber-paradigm. Explain utilizing the housing bubble that has occurred in the past 8 years. Also explain your position on the bubble housing crisis. Describe the stages of the bubble for the aliber-paradigm. Using the paradigm to explain problems in stock market and housing bubble burst.

The Leir Center For Financial Bubble Research

Working Paper #1

THE KINDLEBERGER-ALIBER-MINSKY PARADIGM AND THE GLOBAL SUBPRIME MORTGAGE MELTDOWN
William V. Rapp, The New Jersey Institute of Technology, United States, rappw@adm.njit.edu

ABSTRACT

This paper analyzes the current …show more content…

STRUCTURE AND EVOLUTION OF THE US MORTGAGE MARKET

The US residential mortgage market is a multi-trillion dollar market that dramatically increased over the last five years. In June 2007 residential and non-profit mortgages outstanding amounted to $10.143 trillion up from $5.833 trillion as of September 2002 (Federal Reserve, 2007) and from $2.3 trillion in 1989 (Korngold and Goldstein, 2002). In turn the number of firms and organizations participating in this huge market has proliferated. Traditionally up until about twenty-five years ago home loans and mortgage were usually arranged between a local bank or local savings and loan [S&L] and a local borrower with the bank or S&L holding the mortgage subject to local real estate laws and land registry regulations until maturity or the home was sold or the mortgage refinanced. But starting in the 1980s and expanding into the 1990s and the first years of this century, that all changed. Banks and S&Ls discovered the benefits of securitization and balance sheet turnover. They realized mortgages and other regular payment credit instruments such as auto loans and credit cards had steady cash flows that if bundled would provide investors with a steady income stream that could be capitalized and sold. This led to the concept of securitizing these cash flows.

Now banks and S&Ls rather than holding the loans in as investments bundled and sold them to investors while retaining the servicing