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Figure 2.1 Three of Five Housing Units Are Owner

Occupied (Q3 2008) 10

Figure 2.2 Mortgage Debt Enables Homeownership and Leads to Wealth Accumulation (Quarterly, 1952-Q2 2008) 11

Figure 2.3 In 2008, Mortgage Debt Accounts for More than 50 Percent of the Value of Housing Stock (Quarterly, 1952-Q2 2008) 12

Figure 2.4 Value of Housing Units: How Much Has Been Borrowed, Who Are the Borrowers, and Who Funds Them? (Q2 2008) 13

Figure 2.5 Sources of Funding for Residential and

Commercial Mortgages (Q2 2008) 14

Figure 2.6 Types of Loans Available in the Home

Mortgage Market 15

Figure 2.7 Conventional and Government Home

Mortgage Originations (Selected Years) 17

Figure 2.8 Conventional and Government Home

Mortgages Outstanding (Selected Years) 18

Figure 2.9 Originations of Conventional and Government

ARMs (Selected Years) 19

Figure 2.10 Conventional and Government ARMs

Outstanding (Selected Years) 20

Figure 2.12 Figure 2.13 Figure 2.14

Figure 2.15

Figure 2.16

Figure 2.17

Figure 2.18

Figure 2.19 Figure 2.20

Figure 2.21 Figure 2.22 Figure 2.23

Subprime and Alt-A Shares of Mortgage Originations Spike between 2001 and 2006 and Then Fall (Selected Years) 21

Types and Purposes of Loans Available in the Home Mortgage Market 22

Changing Funding Sources for Home Mortgages (Selected Years) 23

The Mortgage Model Switches from Originate-to-Hold to Originate-to-Distribute (Selected Years) 24

By 2006, Mortgage Brokers Accounted for a Majority of Home Mortgage Originations (Selected Years) 25

Share of Private-Label Mortgage Issuance Increases by 36 Percentage Points in Two Decades 26

Private-Label Mortgage Issuers Account for a Larger Share of Outstanding Home Mortgage Securities (Selected Years) 27

Guarantees of Asset-Backed Securities by Monoline Insurers Dominate Those for Municipal Securities (December 2006) 28

Growth and Shares of Outstanding Securities Backed by Various Assets (Selected Years) 29

Did the Fed Lower Interest Rates Too Much and for Too Long? Federal Funds Rate vs. Rates on FRMs and ARMs (Weekly, January 1991-November 1, 2008) 31

The United States Is the Largest Importer of Capital (2007) 32

Capital Inflows to the United States (1983-2007) 32

On a Roughly Similar But Inverse Track: ARM Share of Total Mortgage Applications and the One-Year ARM Rate (Weekly, 1990-November 3, 2008) 33

Figure 2.24 Credit Boom Pushes Homeownership Rate to

Historic High (Quarterly, 1965-Q3 2008) 35

Figure 2.25 Rental Rate Hits an All-Time Low in 2004

(Quarterly, 1965-Q3 2008) 35

Figure 2.26 Low Interest Rates and Credit Boom

(1994-Q3 2008) 36

Figure 2.27 Home Price Bubble and Credit Boom

(1994-Q3 2008) 37

Figure 2.28 Home Price Bubble and Homeownership

Climb (1990-Q2 2008) 38

Figure 2.29 Home Price Bubble Peaks in 2006

(Monthly, January 1987-September 2008) 39

Figure 2.30 Home Sales Peaked in Fall 2005, Then

Plummeted (Monthly, 1968-September 2008) 39 Figure 3.1 National FICO Scores Display Wide

Distribution 43

Figure 3.2 What Goes into a FICO Score? 44

Figure 3.3 Prime and Subprime Mortgage Originations by Borrower FICO Score Reveal Substantial Overlaps (2006) 45

Figure 3.4 Subprime Home Mortgage Originations Increase Rapidly before Big Decline (2001-Q3 2008) 47

Figure 3.5 Subprime Home Mortgages Outstanding Increase Rapidly before Big Decline (1995-Q2 2008) 47

Figure 3.6 Subprimes Take an Increasing Share of All

Home Mortgage Originations (2001-Q3 2008) 49 Figure 3.7 Subprime Share of Home Mortgages Grows

Rapidly before Big Decline (1995-Q2 2008) 50

Figure 3.8 ARM Share Grows, Following Low Interest

Rates (Quarterly, 2001-Q2 2008) 53

Figure 3.9 Largest Share of ARMs Go to Subprime

Borrowers (Quarterly, 2001-Q2 2008) 54

Figure 3.10 Hybrids Dominate Subprime Home Purchase

Loan Originations (2006) 54

Figure 3.12 Figure 3.13 Figure 3.14

Figure 3.15 Figure 3.16

Figure 3.17 Figure 3.18

Figure 3.19

Figure 3.20

Figure 3.21 Figure 3.22 Figure 3.23

Securitization Becomes the Dominant

Funding Source for Subprime Mortgages

(1994-Q3 2008) 61

Private-Label Mortgage-Backed Security

Issuance Dries up in 2008 64

The Recent Run-up of Nominal Home Prices

Was Extraordinary (1890-Q2 2008) 67

Home Prices Don't Go up Forever: Change in

Nominal Home Prices in 100-Plus Years

(1890-Q2 2008) 68

The Recent Run-up of Real Home Prices Was

Extraordinary (1890-Q2 2008) 68

Home Prices Don't Go up Forever:

Change in Real Home Prices in 100-Plus Years

(1890-Q2 2008) 69

Nominal Returns on Selected Assets

(1890-2007) 71

California and National Median

Home Prices Reach Record Highs

(Monthly, January 1979-September 2008) 71

Ratio of Median Home Price to Median

Household Income Increases Rapidly

(1968-2007) 72

Rent-Price Ratio Reached Historic Low in

2006 But Has Slightly Rebounded

(Quarterly, 1960-Q1 2008) 73

Recent Jump in Homes for Sale: Existing and

New Homes (Monthly, 1989-September 2008) 74

2005: The Collapse in Home Prices Begins

(Quarterly, Q1 1988-Q2 2008) 75

Timeline for the Subprime Mortgage Market

Meltdown and Credit Market Freeze

(December 2006-0ctober 31, 2008) 76

Liquidity Freeze: Spread between

Three-Month LIB0R and 0vernight Index

Swap Rates (Weekly, 2001-0ctober 31, 2008) 77

Figure 3.25 Widening TED Spread: Spread between Three-Month LIBOR and T-Bill Rates (Daily, December 31, 2005-October 31, 2008) 78 Figure 3.26 Market for Liquidity Freezes

(Daily, May 1, 2007-October 31, 2008) 78

Figure 3.27 Median Existing Home Price: Too Good to

Last (Monthly, 1969-August 2008) 79

Figure 3.28 Forty-Six States Report Falling Prices in

Q4 2007 80

Figure 3.29 One-Year Home Price Changes for Selected

Metropolitan Areas (August 2007-August 2008) 81 Figure 3.30 Two-Year Home Price Changes for Selected

Metropolitan Areas (August 2006-August 2008) 81 Figure 3.31 Four-Year Home Price Changes for Selected

Metropolitan Areas (August 2004-August 2008) 82 Figure 3.32 Five-Year Home Price Changes for Selected

Metropolitan Areas (August 2003-August 2008) 82 Figure 3.33 Housing Starts Hit Record in 2006 But Then Drop 64 Percent

(Monthly, 1959-September 2008) 83

Figure 3.34 Private Construction Spending on Residential Property Declines since the Peak of2006 (Monthly, 1993-September 2008) 84

Figure 3.35 Existing Home Sales Are Down Everywhere over the Past Two Years (Percentage Change, Q4 2005-Q4 2007) 85

Figure 3.36 Homes Sit Longer on the Market

(Monthly, 1989-September 2008) 85

Figure 3.37 Homes Stay Longer on the Market as Home Appreciation Slows

(Monthly, 1989-September 2008) 86

Figure 3.38 Percentage of Homes Purchased between 2001

and 2006 That Now Have Negative Equity 87

Figure 3.39 Percentage of Homes Sold at a Loss between

Q3 2007 and Q2 2008 88

Figure 3.40 Percentage of Homes Sold between Q3 2007

and Q2 2008 That Were in Foreclosure 89

Figure 3.41 Figure 3.42 Figure 3.43 Figure 3.44

Figure 3.45 Figure 3.46 Figure 3.47 Figure 3.48 Figure 4.1

Figure 4.2

Figure 4.3

Figure 4.4

Figure 4.5 Figure 4.6 Figure 4.7

Figure 4.8 Figure 4.9

Subprime Delinquencies Skyrocket

(Quarterly, 1998-Q2 2008) 90

Subprime Mortgages Entering Foreclosure

Take off (Quarterly, 1998-Q2 2008) 90

Subprime ARMs Have the Worst Default

Record (Quarterly, Q2 1998-Q2 2008) 91

Foreclosures Are Nothing New

But Their Numbers Have Doubled

(Quarterly, Q2 1999-Q2 2008) 91

Subprime Loans Accounted for Half or More of Foreclosures since 2006 92

Early Problems: Foreclosure Rates of Subprime

Loans by Origination Year (1998-2006) 94

Dow Jones Industrial Average Index

(Daily, 1910-0ctober 31, 2008) 95

Dow Jones Industrial Average Index

(Daily, 1910-0ctober 31, 2008) 96

Losses/Write-Downs, Capital Raised, and Jobs

Cut by Financial Institutions Worldwide through October 31, 2008 106

Cumulative Losses/Write-Downs, Capital

Raised, and Jobs Cut by Financial Institutions

Worldwide through October 31, 2008 107

Worldwide Capital Raised by Source

(July 2007-July 2008) 107

Worldwide Capital Raised by Type of

Instrument (July 2007-August 2008) 108

Financial Stock Prices Take Big Hits 110

Financial Market Capitalization Takes Big Hit 110

Sign of Collapse: Widening Spreads between

Mortgage-Backed and High-Yield Bonds

(Weekly, 2004-0ctober 31, 2008) 113

Yield Spreads: Corporate Bonds vs. Treasury

Securities (2007-0ctober 31, 2008) 114

Widening Spreads between Municipal Bonds and 10-Year Treasury Bonds

(Weekly, 1970-0ctober 24, 2008) 115

Figure 4.10 Commercial Paper Outstanding Declines Substantially

(Weekly, January 4, 2006-0ctober 29, 2008) 116 Figure 4.11 Market for Liquidity Freezes up:

Changes in Commercial Paper Outstanding (Weekly, January 4, 2006-0ctober 29, 2008) 116 Figure 4.12 Money Market Funds Suffer Withdrawals 117

Figure 4.13 Counterparty Risk Increases for Financial

Firms (Daily, July 2007-0ctober 31, 2008) 119

Figure 4.14 Jump in GSE Credit Default Swap Spreads over Treasury Securities Finally Initiates Government Support

(Daily, January 2008-0ctober 31, 2008) 120

Figure 4.15 Average Three-Month Rolling Correlations of Daily Credit Default Swap Premiums of 18 U.S. Industries 125

Figure 4.16 Average Six-Month Rolling Correlations of Daily Credit Default Swap Premiums of 18 U.S. Industries 125

Figure 4.17 Average One-Year Rolling Correlations of Daily Credit Default Swap Premiums of 18 U.S. Industries 126

Figure 4.18 Rising Risk: The Credit Default Swap Market Nearly Doubled Each Year from June 2001 through October 2008 126

Figure 4.19 Estimated Breakdown of Credit Default Swap

Buyers and Sellers of Protection (March 2007) 128 Figure 4.20 Breakdown of Notional Amount of Credit Derivatives of All U.S. Banks by Investment Grade and Maturity (June 2008) 129

Figure 4.21 CDS Premiums Rise Dramatically for G7 in October 2008

(Weekly, January 4, 2008-October 31, 2008) 134 Figure 4.22 CDS Premiums Rise Dramatically for Emerging Economies in October 2008 (Weekly, January 4, 2008-October 31, 2008) 134 Figure 4.23 Looking for a Bottom: Survey of Economists 135

Figure 4.25

Figure 4.26

Figure 4.27 Figure 5.1 Figure 5.2 Figure 5.3 Figure 5.4

Figure 5.5

Figure 5.6

Figure 5.7 Figure 5.8

Figure 5.9

Figure 5.10 Figure 5.11

Home Mortgage Debt Share of Household

Debt Reaches a New High in 2007

(Quarterly, 1952-Q2 2008) 138

Home Mortgage Debt as a Percentage of

Disposable Personal Income Reaches a High in

2007 (Quarterly, 1952-2007) 139

Implied Annualized Price Decline through

Expiration Date of Chicago Mercantile

Exchange Home Price Futures Contracts 139

Stock Market Volatility Reaches Record High

(Daily, January 1, 1990-0ctober 31, 2008) 141

The Mortgage Problem in Perspective

(Mid-2008) 144

Prime Mortgage 0riginations

(January 1999-July 2007) 147

Subprime Mortgage 0riginations

(January 1999-July 2007) 147

Cumulative Foreclosures through September

2007 on Prime Mortgages 0riginated

January 1999 through July 2007 148

Cumulative Foreclosures through September

2007 on Subprime Mortgages 0riginated

January 1999 through July 2007 149

Mortgage Originations: Loan-to-Value (LTV)

Ratio (2006) 150

Mortgage Originations: Documentation (2006) 151

There Are Better Ways to Disclose Information about Home Mortgage Loans 153

When Is a AAA Not a AAA? Multilayered

Mortgage Products Create New and Higher

Ratings 157

Downgrades in the Asset-Backed Securities

Markets 158

Subprime Mortgage-Backed Securities

Downgrades (2005-2007 Issuance) 159

Figure 5.12 The Growth in Mortgage-Backed Securities Has Contributed to the Rise of Structured Finance Collateral in Collateralized Debt Obligations (Quarterly CDO Issuance, 2005-Q3 2008) 161

Figure 5.13 Leverage Ratios of Different Types of Financial

Firms (June 2008) 163

Figure 5.14 Selected Financial Institutions' Leverage Ratios

(Selected Years) 163

Figure 5.15 Increased Leverage Leads to Slight Decrease in

Issuer Rating 165

Figure 5.16 Selected Financial Institutions' Market-to-Book

Ratios (Selected Years) 165

Figure 5.17 Capital-Asset Ratio for Commercial Banks

Shows Long-Term Decline (1896-Q2 2008) 167

Figure 5.18 Leverage Ratio for Commercial Banks Shows

Long-Term Increase (1896-Q2 2008) 167

Figure 5.19 Selected Balance Sheet Items for All

Commercial Banks (Quarterly, 1994-Q2 2008) 168 Figure 5.20 The Growing Role of Agencies and

Government-Sponsored Enterprises (GSEs) in Funding Home Mortgages (Selected Years) 175

Figure 5.21 The Importance of Fannie Mae and Freddie Mac vs. Commercial Banks and Savings Institutions in the Residential Real Estate Market (Q2 2008) 176

Figure 5.22 Fannie Mae and Freddie Mac's Growth since 1990 176

Figure 5.23 Capital Ratios for Fannie Mae and Freddie Mac

(2005-Q3 2008) 177

Figure 5.24 Fannie Mae and Freddie Mac Are Highly

Leveraged (2005-Q3 2008) 177

Figure 5.25 Reported Earnings of Fannie Mae and Freddie

Mac (Quarterly, 2006-Q3 2008) 178

Figure 5.26 Figure 5.27

Figure 5.28

Figure 5.29 Figure 5.30

Figure 5.31

Figure 5.32

Figure 5.33 Figure 5.34

Figure 5.35

Figure 5.36 Figure 5.37

Characteristics of Mortgage Loans and

Mortgage-Related Securities in Freddie Mac's and Fannie Mae's Retained Portfolios

(Selected Years) 180

Characteristics of Mortgage Loans and

Mortgage-Related Securities in Freddie Mac's and Fannie Mae's Retained Private-Label

Portfolios (Selected Years) 180

Freddie Mac's Guaranteed PCs and Structured

Securities by Single-Family Conventional

Mortgage Products (2005-2007) 181

Foreign Share of Purchases of Newly Issued

GSE Debt Declines Abruptly in August 2008 182

Estimated Tax Savings by Individuals Due to

Mortgage Interest Deduction on

0wner-0ccupied Homes 186

Alternative Measures of the Affordability of Mortgage Debt Nationwide

(Quarterly, Q2 1972-Q4 2007) 193

Alternative Measures of the Affordability of Mortgage Debt for California

(Quarterly, Q2 1979-Q1 2008) 194

Reserve Coverage Ratio of All FDIC-Insured

Institutions 195

0utstanding Federal Home Loan Bank

Advances Held by FDIC-Insured Institutions

(1991-Q2 2008) 197

Ratio of 0utstanding Federal Home Loan

Bank Advances to FDIC-Insured Institution

Assets (1991-Q2 2008) 198

0utstanding Brokered Deposits

(1992-June 2008) 198

0utstanding Brokered Deposits to

FDIC-Insured Institution Assets

(1992-June 2008) 199

Investor Share of Second Home Purchases

(Selected Years) 206

Figure 5.39 Drivers of Foreclosures: Strong Appreciation or

Weak Economies? 208

Figure 5.40 After the Housing Bubble Burst in 2007:

Foreclosures Highest for Areas with Biggest Price Declines 209

Figure 5.41 Default Rates of Subprime Home Mortgage Loans and Year-over-Year Change in Employment (January 1998-September 2008) 211 Figure 5.42 Median Percentage Down Payment on Home

Purchases (Selected MSAs, 2006) 212

Figure 6.1 Tightened Standards and Weaker Demand for Commercial Real Estate Loans (Quarterly, 1990-Q3 2008) 220

Figure 6.2 Tightened Standards for Residential Mortgage

Loans (Quarterly, 1990-Q3 2008) 221

Figure 6.3 Weaker Demand for Residential Mortgage

Loans (Quarterly, 1990-Q3 2008) 221

Figure 6.4 Washington Mutual Reverses Its Mortgage

Origination Strategy 222

Figure 6.5 HOPE NOW Alliance Program:

Accumulated Borrower Repayment Plans (Q3 2007-Q3 2008) 225

Figure 6.6 HOPE NOW Alliance Program: Accumulated

Borrower Modifications (Q3 2007-Q3 2008) 225 Figure 6.7 HOPE NOW Alliance Program: Accumulated

Borrower Workouts (Q3 2007-Q3 2008) 226

Figure 6.8 HOPE NOW Alliance Program: Accumulated

Foreclosure Sales (Q3 2007-Q3 2008) 226

Figure 6.9 Commercial Bank Lending Increases over Time

  • Weekly, January 3, 1973-October 25, 2008) 227 Figure 6.10 Percentage Changes in Commercial Bank Loans of Different Types over Time (Weekly, January 3, 1973-October 25, 2008) 228 Figure 6.11 Changes in Commercial Bank Loans of Different Types over Time
  • Weekly, January 3, 2007-October 25, 2008) 229

Figure 6.13 Figure 6.14

Figure 6.15

Figure 6.16

Figure 6.17 Figure 6.18

Figure 6.19

Figure 6.20

Figure 6.21 Figure 6.22

Figure 6.23

Figure 7.1

Figure 7.2

Net Borrowing by Households and Nonfinancial Businesses

(Quarterly, Q1 1990-Q2 2008) 230

Excess Reserves Take Off

(Weekly, January 3, 2007-November 5, 2008) 231

Despite Federal Funds Rate Cuts,

Mortgage Rates Remain Relatively Flat

(Weekly, 2007-0ctober 31, 2008) 233

Increasing Spreads between Corporate Bonds,

Mortgage Securities, and Target Federal Funds

Rate (Weekly, 2007-0ctober 31, 2008) 233

Federal Reserve Assets Increased

But Asset Quality Deteriorated

(Weekly, January 5, 2000-November 26, 2008) 243

Negative Real Short-Term Interest Rates

(Monthly, January 2000-September 2008) 248

The Federal Reserve Has Little

Maneuvering Room

(Daily, June 1, 2008-November 14, 2008) 248

Spreads of Fannie Mae and Freddie Mac Debt Yields over Treasury Rates Reaches All-Time High

(Daily, January 1, 2008-November 19, 2008) 255

Number of FDIC-Insured "Problem"

Institutions 270

Assets of FDIC-Insured "Problem" Institutions 270

Federal Budget Surplus (Deficit)-to-GDP

Ratio (1976-September 2008) 274

Federal Public Debt-to-GDP Ratio

(1976- September 2008) 275

0rigin of U.S. Banking Institutions and

Expanding Regulatory Role of Government 295

Most U.S. Banking Laws Are Responses to Crises 296

Some U.S. Banking Laws Not Instituted as

Crisis Responses 296

Figure 7.4 The Convoluted U.S. Financial Regulatory

Regime 299

Figure 7.5 Percentage of Deposits and Assets Held by Five

Largest Banks 304

Figure 7.6 Big Banks Increasingly Dominate U.S. Banking

Industry: Asset Shares by Bank Size 305

Figure 7.7 Citigroup's Organizational Structure Is

Extremely Complex 305

Figure 7.8 Citigroup's Product Complexity Challenges

Regulators and Its Internal Risk Managers 306

Figure 7.9 Foreign Ownership of Banks 307

Figure 7.10 Increasing Reliance on U.S. Securities Markets for Capital Funding and Portfolio Investment (1900-2008) 311

Figure 7.11 Surge in Amount and Diversity of U.S.

Asset-Backed Securities Outstanding 312

Figure 7.12 U.S. Asset-Backed Securities Outstanding 313

Figure 7.13 Shares of Consumer Credit: Banks Compared to Pools of Securitized Consumer Assets 313

Figure 7.14 Five Big Banks Dominate in Derivatives

Figure A.1 Origin of U.S. Banking Institutions and

Expanding Regulatory Role of Government 322 Figure A.2 Importance of Home Mortgages and

Securitization for Homeownership (1965-June 2008) 339

Figure A.3 Real Estate: An Important Component of

Household Wealth (Selected Years) 341

Figure A.4 Mortgage Brokerages Become Major Players in

Originating Home Mortgages (1987-2006) 351

Figure A.5 Mortgage Brokers Account for Majority of Recent Home Mortgage Originations (1987-2006) 351

Figure A.6 Surge in Amount and Diversity ofAsset-Backed

Securities Outstanding (1999-Q2 2008) 352

Figure A.7 Foreign Share of Treasury Securities

Outstanding (1952-Q2 2008) 352

Figure A.9

Figure A.10

Figure A.11 Figure A.12

Figure A.13

Figure A.14

Figure A.15

Figure A.16

Figure A.17

Foreign Share of Agency- and GSE-Backed Securities 0utstanding (1952-Q2 2008) 353

HUD Subprime and Manufactured Home Lender List (1992-2005) 357

Mortgage-Backed Securities Issued by Issuer (Quarterly, 1985-Q3 2008) 366

Breakdown of Bank Home Loans 366

0ne-Year Home Price Changes for Selected Metropolitan Areas (Q2 2007-Q2 2008) 369

Two-Year Home Price Changes for Selected Metropolitan Areas (Q2 2006-Q2 2008) 369

Four-Year Home Price Changes for Selected Metropolitan Areas (Q2 2004-Q2 2008) 370

Five-Year Home Price Changes for Selected Metropolitan Areas (Q2 2003-Q2 2008) 370

Housing Starts (Monthly, 1960-September 2008) 371

Credit Default Swap Index by Industry (January 2004-0ctober 31, 2008) 401

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