Business Intelligence

International Capital Flows And The Returns To Safe Assets In The United States, 2003-2007

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Executive Summary

A broad array of domestic institutional factors - including problems with the originate-to-distribute model for mortgage loans, deteriorating lending standards, deficiencies in risk management, conflicting incentives for the GSEs, and shortcomings of supervision and regulation - were the primary sources of the U.S. housing boom and bust and the associated financial crisis. In addition, the extended rise in U.S. house prices was likely also supported by long-term interest rates (including mortgage rates) that were surprisingly low, given the level of short-term rates and other macro fundamentals - a development that Greenspan (2005) dubbed a "Conundrum."

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