Senior Honors Theses

Publication Date

Spring 2017

School

School of Business

Major

Business: Economics; Business: Finance; Business: International Business

Keywords

subprime mortgage, collateralized debt obligation, mortgage backed security

Disciplines

Finance and Financial Management | Portfolio and Security Analysis | Real Estate

Abstract

The subprime mortgage crisis occurred due to a number of factors. Included in these factors were the issuance of subprime loans, the securitization of mortgages in the investment banking system, and the deregulation and ultimate failure of the shadow banking system. These causes were evident in both historical trends in the stock market as well as the macroeconomic data leading into the crash. They were perpetuated by investors, mortgage brokers, and banks taking on an abnormal amount of risk in the early 2000s for both psychological and behavioral reasons. These causes, while less than obvious at the time, have, with the benefit of hindsight, become clearer. Thus, the subprime mortgage crisis and subsequent recession were entirely avoidable and could have been prevented.

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