The first run on a bank occurred against the British mortgage lender Northern Rock.

Shadow banking in China is dominated by lending to higher risk borrowers, such as local governments, property developers, and SMEs.

Germans do not see why they should be vulnerable because of poor quality mortgage lending in American inner cities.

Today, however, Spanish banks especially those most heavily engaged in domestic mortgage lending must pay a much higher spread over interbank rates to secure new funding.

Mortgage lending, however, is a long standing activity for commercial and savings banks, mostly unaffected by Glass Steagall or its repeal.

America s mortgage market remains on life support the government now underwrites more than 90 of all mortgages, and President Barack Obama s administration has not even proposed a new system that would ensure responsible lending at competitive terms.

They have considerable flexibility, owing to a range of policy tools, including variable capital and reserve requirements and direct controls on mortgage lending terms.

Public policies to subsidize US mortgage lending have been costly, inefficient, and have encouraged excessive risk taking, which helped push the system toward crisis.

The staff saw the relaxation of lending standards in the US mortgage market, but noted that borrowers at risk of significant mortgage payment increases remained a small minority, concentrated mostly among higher income households that were aware of the attendant risks.

We allow non banks to make home loans and let them offer creative, more affordable mortgages to prospective homeowners not well served by conventional lenders.

With a debt GDP ratio of 230 , a four percentage point rise in borrowing costs would cause the annual deficit to double, to 20 of GDP.

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.

In particular, they should have paid greater attention to the sustainability of US mortgage and consumer debt. In 2007, the mortgage and consumer debt to GDP ratio was more than 90 , compared to 24 for net foreign debt.

In 2007, the mortgage and consumer debt to GDP ratio was more than 90 , compared to 24 for net foreign debt.

This lending squeeze resulted in a sharp drop in GDP and employment, while the sharp sell off in assets ensured further declines.

In Mexico, for example, mortgage debt represents less than 10 of GDP, compared to about 50 of GDP in Europe and 82 of GDP in the US a ratio that has increased more than fourfold in the last two decades.

(d) Consumer Lending (CLP)

(b) Solidarity Group Lending (SGL)

The total sum of assets now under threat is even more important, because mortgages have been mixed up with other kinds of securities, and these packages have been sold throughout the world.

In Spain, banks have historically issued 30 year mortgages whose interest rates are indexed to interbank rates such as Euribor, with a small spread (often less than 100 basis points) fixed for the lifetime of the mortgage.

There was still some borrowing by local governments, of course, but on a limited scale (totaling 3 4 of GDP), owing to institutionalized surveillance of lending.

In Greenspan s words, the self interest of lending institutions would protect shareholders and the economy from lending excess.

As a result, China s credit GDP ratio rose by 40 percentage points in 2008 2011, with most of the lending directed toward large scale investment by state owned enterprises (SOEs).

With the Italian debt GDP ratio currently at roughly 106 , lower borrowing costs reduced the public debt ratio by more than eight percentage points.

The housing recession the worst in US history and worsening every day will eventually see house prices fall by more than 20 , with millions of Americans losing their homes.

Mortgage originators bore no consequences for their irresponsibility, and even those who engaged in predatory lending or created and marketed securities that were designed to lose did so in ways that insulated them from civil and criminal prosecution.

Nor do existing international lending institutions.

Lending dried up and economies started shrinking.

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 Right Weights for Mortgage Risks

Occupy the Mortgage Lenders

So far, the sub prime crisis has had a limited direct impact on Latin America s mortgage markets.

Losses are spreading from sub prime to near prime and prime mortgages, commercial mortgages, and unsecured consumer credit (credit cards, auto loans, student loans).

The IMF s Lending Overhaul

China s real estate investment accounted for 10 of GDP, and slower investment growth in the sector necessarily reduces import demand, directly and indirectly.

Banks had their own incentives to lend wisely, and controls on lending would necessarily prove ineffective.

The Constitution, Land Law and Law on Marriage and Family provide for equal rights of men and women over land (See Article 15).

This justifies government regulation of lending and investment practices.

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 effect was especially pronounced in lending to non financial companies, whereas lending to households an area with traditionally lower internationalization remained more robust.

In Mexico, all mortgages carry fixed interest rates, unlike the infamous exploding ARMs that left US homeowners ruing their choice of adjustable rate mortgages when interest rates rose. Mexican mortgages are indexed to inflation, but the state mortgage agency links that index to the minimum wage and makes up the difference if mortgage interest adjustments for inflation outpace wage growth.

With China s mortgage lending equal to only 10 of GDP, compared to 60 70 in the Anglo Saxon countries, there is huge opportunity for growth.

Mortgage debts, too, must be written down.

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