The Mortgage-Backed Credit Slowdown-and the Rules That Caused It‪.‬

Abstract The U.S. credit crisis in sub-par, mortgage-backed securities that began unfolding in July of 2007 now appears to be spreading to Europe, (1) where housing prices are falling and economic forecasts are for slower growth. (2) The crisis is spreading to stock markets in Asia, as well. (3) The crisis has already caused the layoff of 42,000 employees in New York City's financial industry and has threatened the growth of the city's economy, (4) where 20 percent of Manhattan salaries are earned by financial industry employees. The tightening of mortgage credit and corporate loans (5) now threatens to slow the U.S. economy as well. Although bank lending since midsummer grew at the fastest rate in more than 30 years, that credit is now tightening as banks cut back their lending and increase their loan loss reserves. These new reserves (6) will come from earnings, so this tightening will turn the recent banking boom into a bust. (7)