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In an annual report that will be released next week, IMF says the origins of the global financial crisis can be found in the U.S. housing finance system. According to the International Monetary Fund (IMF), if the American government had better handled the U.S. housing crisis then the world might not now be facing a global financial crisis. The IMF goes on to call the federal involvement in the U.S. housing market “pervasive” but not particularly effective. IMF called for an “overhaul” of the manner in which the federal government deals with the housing market. IMF went on to criticize “a plethora of tax breaks and subsidies…[that] may have promoted the purchase of more and bigger homes…exacerbating leverage and the severity of boom and bust dynamics.” The report also analyzes the impact of a number of housing finance characteristics on mortgage credit and house prices. It goes on to suggest that the governmental participation in housing finance led to deeper swings in property values and amplified the expansion of mortgage credit during the years leading up to the recent crisis in advanced economies like the United States.
IMF then went on to praise the Obama administration’s housing finance reform proposal as a “welcome step” toward repairing the U.S. housing finance system. IMF suggests that reform of the U.S. housing finance system should, "first address current gaps in the regulatory, supervisory, and consumer protection frameworks; provide greater definition and transparency of government involvement in the housing market; reconsider the role of the housing GSEs to create a more level playing field in mortgage, while encouraging 'safe' private-label securitization. "
What are your opinions on how the IMF labeled the US housing sector as a catalyst to the global crisis? Do you think their suggestions of reform are palpable given the current state of affairs?
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The IMF's label of the US housing finance system as the catalyst of a global financial crisis is spot on. Clearly, the US a key player in global economics. The housing finance system was the catalyst to our domestic financial crisis; the effects of our economic fallout at home have surely spread outward. In 2008, after the burst of the housing bubble, unemployment levels skyrockets, the stock market fell into crisis as the S&P 500 hit an 11 year low, and banks froze lending. Add to that the bailout, falling home values, nationwide foreclosures, and all of the other effects that aren't on the top of my head, and you've got a group of industries and an entire nation of consumers and economic actors that are not going to participate in global economics exactly as they had before the bubble.
ReplyDeleteI also think the IMF recommendations lay out a pretty good road map for where we need to go.
I also believe the IMF's label of the US housing finance system as the catalyst of a global financial crisis is pretty accurate. As Beth mentioned with unemployment skyrocketing and banks freezing lending there was no way for the majority of the US population to invest in the US let alone abroad. This lack of ability to invest had huge impacts on the stock market and consequently the entire global economy. This is such a tough economic downfall that we have to overcome, so I think it would be fair to say any plan at this point is moving in the right direction. IMF recommendations seem like a good starting point to me.
ReplyDeleteHa I agree that this assessment is very accurate, but it came across to me as more of a "duhhh" moment. Anyone who knows even a little bit about the housing market bubble can honestly say that the U.S screwed up. Deregulation led to very irresponsible behaviors and tactics for get rich quick schemes, ignoring the possible long term effects. If its so clear in hindsight, what were people thinking during the madness?
ReplyDeleteIt's always easy to point fingers after the fact, but why couldn't it have been stopped during the whole process? I'm sure there were people out there who saw what was going on and said, "hey, that's not right." But no one seems to listen to those people. Why can't we have people in the white house like that?
I thought the IMFs assessment of Obama's new initiatives was hilarious. "first address current gaps in the regulatory, supervisory, and consumer protection frameworks; provide greater definition and transparency of government involvement in the housing market; reconsider the role of the housing GSEs to create a more level playing field in mortgage, while encouraging 'safe' private-label securitization. " Another "duhh" moment. Pretty much they are saying just to go back to steady growth and standards like they were before, but of course in a much wordier way. Ridiculous