Structuring the global market for mortgage-backed securities
This project looks at the development of the market for mortgage-backed securities in the United States and Europe in the years leading up to the 2008 financial crisis. The goals of this project are, first, to understand the role of mortgage securitization in the crisis and, second, to explain why financial institutions embraced the production and sale of mortgage-backed securities and their derivatives on such an enormous scale during the first decade of the twenty-first century.
Two papers written with Neil Fligstein 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 global market for U.S. subprime mortgage-backed securities was a key channel for the initial spread of the financial crisis across the developed world in late 2009 and early 2009. Banking crises occurred in countries where banks had purchased U.S. subprime mortgage-backed securities and used them to back other, more exotic financial derivatives. These papers have been published in the Socio-Economic Review and the Routledge Companion to Banking Regulation and Reform.
The results of the first papers beg the question of why firms chose to embrace subprime mortgage securitization in the first place, an activity once confined to marginal financial actors. In two follow-up papers, I use transaction-level data to examine how relations of cooperation and competition within domestic banking sectors help account for the adoption of subprime mortgage securitization in the United States and Spain, both countries in which securitization fueled disastrous real estate bubbles in the early twenty-first century. I find that in both the United States and Spain, the dynamics of competition in recently deregulated parts of the banking sector spurred firms to produce greater and greater amounts of subprime 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.
Two papers written with Neil Fligstein 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 global market for U.S. subprime mortgage-backed securities was a key channel for the initial spread of the financial crisis across the developed world in late 2009 and early 2009. Banking crises occurred in countries where banks had purchased U.S. subprime mortgage-backed securities and used them to back other, more exotic financial derivatives. These papers have been published in the Socio-Economic Review and the Routledge Companion to Banking Regulation and Reform.
The results of the first papers beg the question of why firms chose to embrace subprime mortgage securitization in the first place, an activity once confined to marginal financial actors. In two follow-up papers, I use transaction-level data to examine how relations of cooperation and competition within domestic banking sectors help account for the adoption of subprime mortgage securitization in the United States and Spain, both countries in which securitization fueled disastrous real estate bubbles in the early twenty-first century. I find that in both the United States and Spain, the dynamics of competition in recently deregulated parts of the banking sector spurred firms to produce greater and greater amounts of subprime 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.