The purpose of the article is to explain the causes and the mechanism of the financial crisis in the United States , which was triggered by the crash on the subprime mortgage credit market in the mid - 2007. The starting point of the analysis is the standard partial equilibrum model of the mortgage credit market and the identification of the main factors determining the demand for, and supply of, mortgage credits. It is demonstrated that the traditional mortgage banking model, based on durable bilateral relationsip between the bank and the debtor, was replaced at the end of 1990. by a new model, based on securitization and globalization of financial markets. Statistical data for 1975 - 2007 are used to estimate regressions of demand and supply of credits with respect to several key variables. It is shown that the rapid expansion of mortgages credits in the US afler 1999 has been mainly the reflection of a major shift of the supply curve, which in turn was caused by a number of factors such as the abundance of financing linked to the inflows of foreign capital , securitization of illiquid credit assets, speculative growth of real estete prices, inconsistency between the traditional methods of risk assessment and the nature of the new financial instruments (derivatives), the implicit government guarantees extended to financial intermediation institutions, and the weakness of banking and proprietary supervision. On the other hand, the shift of the demand curve, caused by factors such as speculation, changes in household incomes, the fall of savings ratio and a low level of interest on mortgage credits, have been of lesser importance. (JEL Code: E44, G18, G21, G24)
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