Julio J. Rotemberg
Harvard Business School (708042-PDF-ENG)
January 18, 2008
This case focuses on the financial difficulties the United States faced from August to December 2006, as well as its roots in subprime loans. After briefly analyzing how pre-1990 mortgages were structured and negotiated, he describes subprime mortgages, as well as other groundbreaking mortgages that were issued in the 1990s. It also discusses how these mortgages were packaged in securities and by whom. Ultimately, you own these claims and the risk involved. The case then describes the pain caused by foreclosures and the impact of the rise in mortgage defaults on financial markets. It also records the response of US and European central banks to emerging financial problems. Finally, in the case, actions are proposed to address the consequences or causes of the crisis. These include measures to reform financial system supervision, change bankruptcy rules, and regulate mortgage financing. Some attention is being paid to the role of rating agencies in the crisis and in the financial system as a whole.
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