A year ago, however, with the subprime mortgage meltdown of August 2007, I became certain.

And essentially the same happened with US subprime mortgage lending and with the Spanish banking system in the 2000 s.

After the subprime crisis erupted, mortgage and consumer debt was paid down by households either with their savings or by default.

Indeed, subprime mortgage lending delivered illusory wealth increases to Americans at a time when they were suffering from stagnant or falling real wages.

Legislation had been enacted to eliminate discrimination against women in access to credit, including mortgage loans.

As a result, mortgage brokers maximize their income by generating larger volumes of mortgages, as do the banks that package these loans into mortgage backed securities (MBS s).

The first lesson is that, despite the limited overall volume of subprime loans, the subprime crisis could blow up into the biggest financial crisis in living memory, because an overstretched financial system was unable to cope with even limited losses.

Consumer credit began in China only in the late 1990 s, with regulations allowing banks to offer mortgage loans, which now amount to about 10 of total loans.

The banks that originated mortgage loans sold their portfolios to investors who didn't really understand what they were buying.

The impetus for a big subprime market came from within the private sector innovation by giant mortgage lenders like Countrywide, Ameriquest, and many others, backed by the big investment banks.

After all, when the global financial crisis erupted in 2008 from the bowels of the American subprime mortgage market, global investors responded by fleeing to the US, not from it.

What started with subprime mortgages spread to all collateralized debt obligations, endangered municipal and mortgage insurance and reinsurance companies and threatened to unravel the multi trillion dollar credit default swap market.

Europe s Subprime Quagmire

The famous ninja (no income, no job and no assets) mortgage loans were as clear a sign of regulatory negligence as any.

Debt relief created fewer problems for banks in the US because a significant proportion of the subprime loans packaged into AAA rated securities had been sold to gullible foreigners.

Third, if you plug an unemployment rate of 10 to 11 into any model of loan defaults, you get ugly figures not just for residential mortgages (both prime and subprime), but also for commercial real estate, credit cards, student loans, auto loans, etc.

A true loss would be inflicted on a bank s creditors only if the write off losses on toxic mortgage loans exceeded the bank s equity.

Sub Saharan Africa s Subprime Borrowers

Tools include seed funding, training, consultation services, interest free proposal development loans and more flexible mortgage loan insurance to facilitate the financing of affordable housing.

By late 2007, for example, the Fed and the US Treasury had most likely already seen at least one report arguing that only massive intervention to support subprime loans could forestall a catastrophe.

However, beyond the mortgage market, other huge risks are lurking, especially in the US financial system credit cards, car loans, and presumably a few other things.

Derivatives markets for real estate should also facilitate the creation of mortgage loans that help homeowners manage risks by, say, reducing the amount owed if a home s value drops.

Or the deposits can be consumer paper issued by KKR Atlantic Financing, and the loans can be CDO sub prime mortgage tranches that KKR Atlantic holds in its portfolio.

The policy and regulatory mistakes that contributed to the subprime mortgage crisis and thus to the US financial system s near meltdown and the eurozone s travails have brought the issue of optimal economic regulation and its relation to democracy to the fore once again.

According to the new regulations, starting from 2003, households, co operatives, small and medium sized enterprises can borrow loans of under 15m Vietnamese dong from the national fund for employment without mortgage.

Banks naturally avoided traditional business loans (which would have to be backed by more capital), and instead loaded up on the highest yielding and thus riskiest AA or AAA mortgage backed securities that they could find.

Occupy the Mortgage Lenders

This, of course, is just the story of subprime mortgages in another guise.

For example, under the internationally agreed Basel Committee rules that were in place before the 2008 crash, capital requirements for business loans were five times higher than for mortgage backed securities that had AA or AAA ratings.

Policy enhancements have been made to mortgage portability, second homes and mortgage qualification for self employed borrowers.

But the paper also shows that domestic prudential policies such as capping home mortgage loans at a certain percentage of the property s value, or increasing banks capital requirements during economic upswings can be effective at restraining lending booms.

It was widely known that banks and mortgage companies were engaged in predatory lending practices, taking advantage of the least educated and most financially uninformed to make loans that maximized fees and imposed enormous risks on the borrowers.

The National Bank for example has School Fee loans, Personal loans and lease loans at different rates of repayment.

Securitization putting large numbers of mortgages together to be sold to pension funds and investors around the world worked only because there were rating agencies that were trusted to ensure that mortgage loans were given to people who would repay them.

Graduates going into mortgage banking are faced with a different, but equally vital, challenge to design new, more flexible loans that will better help homeowners to weather the kind of economic turbulence that has buried millions of people today in debt.

The Right Weights for Mortgage Risks

Mortgage debts, too, must be written down.

For example, during the housing bust in the United States in the late 1980 s, many banks that were mortgage lenders (the Savings ampamp Loans Associations) went belly up, leading to a banking crisis, a credit crunch, and a recession in 1990 1991.

The final tab on the toxic mortgage bailout and other assets is likely to be a larger percentage of a larger amount, but still far less than the face value of the loans, because the underlying assets will in many cases retain considerable value.

No loans for prisoners.

It includes some loans.

For banks, the assets typically include commercial and personal loans, mortgages, construction loans and investment securities.

Globalization implies that America s mortgage problem has worldwide repercussions.

But mortgage markets remain underdeveloped in most emerging economies.

To get more people to borrow more money, credit standards were lowered, fueling growth in so called subprime mortgages.