Structuring the global market for mortgage-backed securities
This project examines the development of the global market for mortgage-backed securities in the years leading up to the 2008 financial crisis. I am interested in why banks and investors chose to purchase riskier and riskier mortgage-backed financial products on an enormous scale over the first decade of the twenty-first century. This project draws on the wealth of transaction-level records on securities issuance that have been made available in the aftermath of the crisis in order to examine decision-making on a deal-by-deal basis.
I have already written two papers with Neil Fligstein that consider how the 2008 financial crisis spread across the developed world. Using country and bank-level data, we show that the participation of banks in the mainly transatlantic market for U.S. subprime mortgage-backed securities was a key channel for the initial spread of the financial crisis in late 2008. Banking crises occurred in countries where banks built up large holdings of U.S. subprime mortgage-backed securities and their more exotic derivatives, often funded with equally exotic short-term financing arrangements. These papers have been published in Socio-Economic Review and the Routledge Companion to Banking Regulation and Reform.
The results of the first papers beg the question of why international investors chose to embrace subprime mortgage securitization in the first place, an activity once confined to the very margins of the U.S. financial industry. In two follow-up papers I use data from securities prospectuses and network methods to examine how interactions among firms within domestic banking sectors can account for the explosive growth of subprime mortgage securitization in the United States and Spain, two countries where securitization fueled disastrous real estate bubbles. I find that in both the United States and Spain influxes of international capital into recently deregulated parts of the banking sector spurred competition among lenders to produce greater and greater amounts of mortgage-backed securities. Using quasi-spatial methods to analyze the sources of alignment in firm strategies, I show that the banks most exposed to competition in mortgage lending continued to produce subprime mortgage-backed securities even as the market began to collapse.
Neil Fligstein and Jacob Habinek. 2014. “Sucker Punched by the Invisible Hand: the World Financial Markets and the Globalization of the U.S. Mortgage Crisis.” Socio-Economic Review 12 (4): 637-665.
Neil Fligstein and Jacob Habinek. 2016. “How the American Financial Meltdown of 2008 Caused the Global Financial Crisis.” In Ertürk, Ismail, and Daniela Gabor, eds., The Routledge Companion to Banking Regulation and Reform. London: Routledge.
Tod van Gunten and Jacob Habinek. "Relational Herding in Financial Markets: Mortgage Securitization and the Spanish Banking Crisis." Working paper.
Jacob Habinek, Adam Goldstein, and Neil Fligstein. “The Structure and Transformation of Organizational Fields: Subprime Mortgage Finance, 1993-2008.” In preparation.
I have already written two papers with Neil Fligstein that consider how the 2008 financial crisis spread across the developed world. Using country and bank-level data, we show that the participation of banks in the mainly transatlantic market for U.S. subprime mortgage-backed securities was a key channel for the initial spread of the financial crisis in late 2008. Banking crises occurred in countries where banks built up large holdings of U.S. subprime mortgage-backed securities and their more exotic derivatives, often funded with equally exotic short-term financing arrangements. These papers have been published in Socio-Economic Review and the Routledge Companion to Banking Regulation and Reform.
The results of the first papers beg the question of why international investors chose to embrace subprime mortgage securitization in the first place, an activity once confined to the very margins of the U.S. financial industry. In two follow-up papers I use data from securities prospectuses and network methods to examine how interactions among firms within domestic banking sectors can account for the explosive growth of subprime mortgage securitization in the United States and Spain, two countries where securitization fueled disastrous real estate bubbles. I find that in both the United States and Spain influxes of international capital into recently deregulated parts of the banking sector spurred competition among lenders to produce greater and greater amounts of mortgage-backed securities. Using quasi-spatial methods to analyze the sources of alignment in firm strategies, I show that the banks most exposed to competition in mortgage lending continued to produce subprime mortgage-backed securities even as the market began to collapse.
Neil Fligstein and Jacob Habinek. 2014. “Sucker Punched by the Invisible Hand: the World Financial Markets and the Globalization of the U.S. Mortgage Crisis.” Socio-Economic Review 12 (4): 637-665.
Neil Fligstein and Jacob Habinek. 2016. “How the American Financial Meltdown of 2008 Caused the Global Financial Crisis.” In Ertürk, Ismail, and Daniela Gabor, eds., The Routledge Companion to Banking Regulation and Reform. London: Routledge.
Tod van Gunten and Jacob Habinek. "Relational Herding in Financial Markets: Mortgage Securitization and the Spanish Banking Crisis." Working paper.
Jacob Habinek, Adam Goldstein, and Neil Fligstein. “The Structure and Transformation of Organizational Fields: Subprime Mortgage Finance, 1993-2008.” In preparation.