More on Plenary 1
Friday, March 14, 2008In Plenary 1, Kathleen Engel, Professor of Law at Cleveland State University, summed up the genesis of the subprime mortgage crisis with the quote: “A rolling loan gathers no loss.”
As entities in the mortgage market–from loan originators, brokers, security packagers, banks, to secondary market buyers and investors–quickly passed on their loans to the next entity. Each entity gathered good profits along the way. Since loans were quickly passed on to the next entity, each entity did not find it worthwhile to conduct due diligence on the loans. And now we have a full blown crisis in the financial system.
She pointed to the close nexus between credit rating agencies and investment banks as also contributing to the present financial crisis.
According to Engel, the wave of deregulation started since the Reagan Adminstration also created the situation of a basically unregulated subprime lending sector, she said. The federal government remained passive as the crisis was brewing. Some state and local governments did raise the alarm about the situation and passed their own anti-predatory lending laws. But they were sometimes prevented from implementing them.
According to Kathleen Engel the country needs to be concerned about this crisis. In addition to the financial sector being in a mess, there are also veryhigh social costs of the foreclosure crisis in the form of rising school dropout rates, rising drug use, and rising teen pregnancies in communities devastated by foreclosures–Engel pointed out.
And now I rush off to the next Plenary. More later.
Nandinee K. Kutty is an economist and a policy consultant. Dr. Kutty has authored papers in peer-reviewed journals of economics and policy. She is an editor of and contributor to a recent book on housing policies in America published by Routledge. She has a Ph.D. in economics from the Maxwell School, Syracuse University, where she was awarded the Roscoe Martin Dissertation Award, and a University Fellowship. She was formerly an assistant professor at Cornell University. She has been awarded numerous grants for research and innovative teaching.