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Article

The Deeper Causes of the Financial Crisis:
Mortgages Alone Cannot Explain It

Mark Adelson
The Journal of Portfolio Management Spring 2013, 39 (3) 16-31; DOI: https://doi.org/10.3905/jpm.2013.39.3.016
Mark Adelson
is chief strategy officer at The BondFactor Company, LLC, in New York, NY.
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  • For correspondence: madelson@bondfactor.com
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Abstract

Losses on U.S. residential mortgage loans are too small to explain the magnitude of the 2008 financial crisis. Total losses, including both losses realized to date and those yet to be realized, should fall in the range of $750 billion to $2 trillion. The global magnitude of the crisis is significantly larger, probably in the range of $5 trillion to $15 trillion, depending on the measuring approach. This implies that losses on residential mortgage loans cannot be the main cause of the crisis. They can only be a trigger that unleashed the true causes. The failure (or near failure) of a significant number of major financial firms suggests that high leverage and strong risk appetites were important immediate causes of the crisis. However, explaining the sources of high leverage and strong risk appetites requires probing for deeper causes that developed over a longer period. This article proposes deeper causes that include securities firms’ conversion from partnerships to corporations, the 30-year deregulation trend, the quant movement, the spread of risk-taking culture throughout the financial industry, and globalization.

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The Journal of Portfolio Management: 39 (3)
The Journal of Portfolio Management
Vol. 39, Issue 3
Spring 2013
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The Deeper Causes of the Financial Crisis:
Mortgages Alone Cannot Explain It
Mark Adelson
The Journal of Portfolio Management Apr 2013, 39 (3) 16-31; DOI: 10.3905/jpm.2013.39.3.016

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The Deeper Causes of the Financial Crisis:
Mortgages Alone Cannot Explain It
Mark Adelson
The Journal of Portfolio Management Apr 2013, 39 (3) 16-31; DOI: 10.3905/jpm.2013.39.3.016
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  • Article
    • Abstract
    • THE COST OF THE FINANCIAL CRISIS
    • SIZING THE LOSSES FROM MORTGAGE LOAN DEFAULTS
    • THE IMMEDIATE CAUSES OF THE FINANCIAL CRISIS
    • THE DEEPER CAUSES
    • CONCLUSION
    • REFERENCES
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  • PDF (Subscribers Only)

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