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The Wild Ride of Mortgage-Backed Securities

Working paper #618
Stephen A. Roth

This article traces the root cause of today’s mortgage market meltdown. From the beginning of the mortgage securities industry in 1979, the author describes how the mortgage market evolved through the ’80s, the ’90s, right up to today’s crisis. No matter the crisis—war, banking failure, or presidential impeachment—the mortgage securities market was supposed to always provide credit to the average American homeowner or would-be-homeowner. How could the mortgage industry, a close to trillion-dollar industry, suddenly collapse? Who is to blame for the ordinary Americans being denied a mortgage to buy into the American dream? How could $80 billion to $90 billion be wiped out virtually overnight? No one involved in the development of the mortgage securities market ever dreamed that credit would be shut down again. They were wrong.

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