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The Subprime VirusReckless Credit, Regulatory Failure, and Next Steps$
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Kathleen C. Engel and Patricia A. McCoy

Print publication date: 2011

Print ISBN-13: 9780195388824

Published to Oxford Scholarship Online: April 2015

DOI: 10.1093/acprof:osobl/9780195388824.001.0001

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(p.3) 1 Prologue
The Subprime Virus

Kathleen C. Engel

Patricia A. McCoy

Oxford University Press

This chapter traces the development of the subprime crisis, detailing how consumer abuses in an obscure corner of the home mortgage market spawned a virus that led to the near meltdown of the world's financial system. The virus had several strands. In the first, lenders cooked up hazardous subprime loans and peddled them to people who they knew could not afford to repay the loans. In the second, Wall Street sliced and diced subprime risk and spread it to the global financial system. In the third, traders bought trillions of dollars in credit default swaps with little or no margin on the bet that the whole enterprise would come crashing down. In the fourth and final strand, the federal government witnessed what was happening and made a deliberate decision to desist from any meaningful action. These strands combined to unleash untold economic harm.

Keywords:   subprime market, subprime lending Cleveland, credit market, recession, subprime loans, mortgages, global financial system

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