In their article “The American Mortgage in Historical and International Context” 2005, Green and Watcher observed how the history of the American mortgage has undergone enormous changes of late. In 1979, mortgage debt was 46 percent of income; by 2001 it had risen to 73 percent of income (Bernstein, Boushey and Mishel, 2003). Similarly, mortgage debt was 28 percent of household assets by 1979 and 41 percent of household assets by 2001. (Green and Watcher 2005)
As seen in Figure 1 below, as of 2004 mortgage debt was accounting for roughly 65% of GDP by 2004. Therefore it is clearly evident that in a few decades leading up to the crisis, the American mortgage industry witnessed a period of aggressive expansion. This unprecedented period of growth meant that the US economy had become extremely dependent on the housing market and ultimately meant that any decline in housing prices would have a detrimental effect on the US economy.
One of the more recent upward trends in mortgage debt as a percentage of GDP came in 1995, when the then President Bill Clinton passed a housing bill, which was infamous for going ridiculous lengths to increase the national homeownership rate. The bill adequately called “The National Homeownership Strategy: Partners in the American Dream”, promoted paper-thin down payments and pushed for ways to get lenders to give mortgage loans to first-time buyers with shaky financing and incomes. (Mason (2008))
The concept behind this was that the purchase of a home provided the new owner with a form of security. For millions of Americans the value of their home would be their only real security. By 2004, 68 percent of households owned their own homes and, for most of them, housing equity will make up nearly all of their nonpension assets at retirement (Venti and Wise, 1991).
The following is a paragraph taken from the bill and is a real insight into the ideology of those who some claim put the causes of the crisis into motion. “For many potential homebuyers, the lack of cash available to accumulate the required downpayment and closing costs is the major impediment to purchasing a home. Other households do not have sufficient available income to to make the monthly payments on mortgages financed at market interest rates for standard loan terms. Financing strategies, fueled by the creativity and resources of the private and public sectors, should address both of these financial barriers to homeownership” (Mason (2008)). Mason (2008) found the contents of this bill slightly bemusing – “It strikes me as reckless to promote home sales to individuals in such constrained financial predicaments.”
In contrast to Mason, thanks to the kind of policies mentioned above, Green and Watcher (2005) states that the home mortgages available to borrowers in the United States have evolved over time, into a broadly available menu of choices that is not available anywhere else in the world. They believed that this wide variety of choices was a benefit to the U.S mortgage system as it, coupled with the implicit government guarantee for Fannie Mae and Freddie Mac, solved the problem of how to persuade low-risk borrowers to join the property ladder. Green and Watcher (2005) believed that these unique characteristics of the U.S. mortgage provided substantial benefits for American homeowners and the overall stability of the economy. But Green and Watcher (2005) did ultimately conclude that the benefits to mortgage borrowers come with their own set of risks: namely, the risk that Fannie Mae and Freddie Mac will malfunction in a way that will either cost the federal government a lot of money, or lead to a systematic crisis in U.S. financial markets, or both. This risk is real.
The Housing Bubble
By 2004, 68 percent of households owned their own homes and, for most of them, housing equity will make up nearly all of their nonpension assets at retirement (Venti and Wise, 1991). While the other 32 percent at the time were owners-in-waiting, renting and watching the housing market with great interest. Himmelberg et al (2005) noted that in some individual cities, such as San Francisco and Boston, real home prices grew about 75 percent from 1995 to 2004, almost double the national average.
Himmelberg et al (2005) noted that between 1975 and 1995, real single-family house prices in the United States increased an average of 0.5 percent per year, or 10 percent over the course of two decades. By contrast, from 1995 to 2004, national real house prices grew 3.6 percent per year, a more than seven-fold increase in the annual rate of real appreciation, and totalling nearly 40 percent in one decade.
In Himmelberg, Mayer and Sinai’s (2005) paper Assessing High House Prices: Bubbles, Fundamentals and Misperceptions they examined the possibility of a bubble in housing prices prior to the crisis. Interestingly they note that house price watching had become a national pastime with seemingly everyone always expecting the value to increase. Of course there were many sceptics but the overwhelming majority believed that house prices would simply keep rising. The big question that was raised by these authors in the years leading up to the crisis was “how does one tell when rapid growth in house prices is caused by fundamental factors of supply and demand and when it is an unsustainable bubble?” Himmelberg et al (2005)
Stiglitz (1990) provided a general definition of asset bubbles, he stated “If the reason that the price is high today is only because investors believe that the selling price is high tomorrow—when ‘fundamental’ factors do not seem to justify such a price—then a bubble exists.”
(Himmelberg, Mayer and Sinai 2005) think of a housing bubble as being driven by homebuyers who are willing to pay inflated prices for houses today because they expect unrealistically high housing appreciation in the future.
In an attempt to answer the question previously stated, Himmelberg et al (2005) calculated the local annual cost of owner-occupied housing and constructed measures of home values by comparing this cost to local incomes and rents. But constant-quality data on house prices and rents only existed for less than three decades, covered only two house price booms and was not comparable across different cities. Therefore using this sort of data they found it is impossible to state definitively whether or not a housing bubble existed. However they did not agree that most housing markets looked much more expensive in 2004 than it had previously looked over the past 10 years, and in most major cities their valuation measures were nowhere near their historic highs.
Himmelberg et al (2005) evidence did not suggest that house prices cannot fall in the future if fundamental factors change. They cautioned that an unexpected rise in real interest rates would raise housing costs, or that a negative shock to a local economy, would lower housing demand, slowing the growth of house prices and possibly even leading to a house price decline. However, they noted that did not mean that today houses are systematically mispriced.
2.2 What are Subprime Mortgages?
Subprime mortgages according to Greenspan (2007) are loans made to borrowers who are perceived to have high credit risk, often because they lack a strong credit history or have other characteristics that are associated with high probabilities of default. Having emerged more than two decades ago, Greenspan (2007) reveals that subprime mortgage lending began to expand in earnest in the mid-1990s; this expansion was spurred in large part by innovations, which will be explained in full later, that reduced the costs for lenders of assessing and pricing risks. Therefore subprime mortgages are not a new product but nor are complaints about subprime loans. Since the U.S housing bubble began to burst in 2005 the risk that was implicit in these loans came to fruition. Mayer et al (2009) maintains that this was indicative of the fact that subprime loans are completely dependent on macroeconomic conditions such as interest rates, unemployment, and house prices being favourable.
Table 1above comprised by Mayer et al (2009) shows how the amounts of subprime and non-prime (ALT-A) mortgages being supplied in the U.S ballooned over a 4 year period from 2003 and to 2006. This is emphasized by Ezaril’s (2005) statement “Here’s one piece of good news for those qualifying for subprime rates: In the past, those who didn’t have prime credit were often rejected for loans altogether.”Now you’re talking about a market that’s going to serve anyone,””. Of course it was this kind of recklessness and lack of restraint that would contribute to the worst financial crisis ever experienced.
Mayer et al (2009) writes that this momentum began to change in the middle of 2005, when mortgage rates started to rise and house price appreciation first began to slow. Nonprime lending levelled off in 2006, dropped dramatically in the first half of 2007, and became virtually nonexistent through most of 2008.
2.4 Subprime Borrowers
Ezaril (2005) states that there is not a hard and fast rule to what constitutes a “subprime” borrower because these labels are really up to the lender. But in general, Ezaril (2005) suggests banking regulators consider subprime borrowers as those with:
- a FICO score of 660 or lower
- two or more 30-day delinquent payments in the past 12 months, or one 60-day delinquency in the past 24 months
- a foreclosure or charge-off in the past 24 months
- any bankruptcy in the last 60 months
- qualifying debt-to-income ratios of 50 percent or higher
- limited ability to cover monthly living expenses.
Of course many lenders will have different systems for categorizing the riskiness of their borrowers but the list above is an adequate example of some of the criteria that is analysed. So we have what a subprime borrower can be comprised off but just who are these subprime borrowers? Ezaril (2005) reveals that according to a Fannie Mae Foundation report on predatory lending, the market has seen exponential growth in lower-income, minority communities. Guttentag (2007) defines a subprime borrower as one who cannot qualify for prime financing terms but can qualify for subprime financing terms. The failure to qualify for prime financing is due primarily to low credit scores. A very low score will disqualify. A middling score might or might not, depending mainly on the down payment, the ratio of total expense (including debt payments) to income, and ability to document income and assets.
Essentially the difference between being a prime or subprime borrower means that a higher rate of interest is charged and the loan conditions themselves can vary. The higher rates of interest was the only obvious difference in the contracts of subprime loans. Mayer et al (2009) reveals that about 70 percent of subprime mortgages required borrowers to pay a fee if they refinanced their mortgages before a certain period of time elapsed. This is known as a prepayment penalty. According to Mayer et al (2009) prepayment penalties are controversial because they might make it expensive to refinance, and many borrowers appear not to realize that their mortgages include this provision. However, mortgage rates tend to be lower on loans with prepayment penalties, resulting in more affordable monthly payments for borrowers (Mayer, Piskorski, and Tchistyi, 2008).
2.5 Subprime Lenders
Guttentag (2007) describes a sub-prime lender as one who made loans to borrowers who did not qualify for loans from mainstream lenders. Some were independent, but most were affiliates of mainstream lenders operating under different names. The past tense is used because virtually all sub-prime lenders have disappeared due to the state of the housing market today.
In the early 2000’s and the years leading up to the crisis, Keys et al (2008) believes as brokers did not bear the ultimate costs of default, they may have had a lower incentive to screen applicants carefully. This coupled with the commission that many brokers received and the overall consensus at the time that the practice of subprime loans was essentially a safe one meant therefore that these brokers gave the green light to as many applications as they could. Also, Mayer et al (2009) finds that underwriting deteriorated along several dimensions: more loans were originated to borrowers with very small down payments and little or no documentation of their income or assets, in particular. These seemingly worrying circumstances were over-looked by lenders for two main reasons. Firstly, the entire structure of rates and fees was higher at sub-prime lenders to cover the greater risk and higher costs of sub-prime lending, Guttentag (2007) and secondly due to the constant appreciation of house prices, the banks investment was considered to be protected.
The business of subprime mortgages had previously (early 1990’s) been a very small piece of the mortgage industry but by 2004 it practically represented the industry. By 2004, 68 percent of households owned their own homes and, for most of them, housing equity will make up nearly all of their nonpension assets at retirement (Venti and Wise, 1991). This is consistent with the American philosophy, where people were encouraged to become homeowners. Millions of Americans were encouraged to get on to the property ladder from as early as 1995 when the then President Bill Clinton passed a housing bill, which is now infamous for going ridiculous lengths to increase the national homeownership rate. Coy (2008)
2.6 The problems with the Subprime Market
2.8 The Future of the Subprime
Should both of these be addressed??
3.1 What is Securitization?
As subprime lending grew, so too did the extent to which these loans were pooled into securities and sold to investors. Mayer et al (2009) writes this process, known as securitization, transforms illiquid individual mortgages into financial products that can be bought and sold as widely as stocks and bonds. It essentially is the financing or re-financing of income yielding assets by packaging them into a tradeable form through an issue of bonds or other securities. (International Finance Corporation 2004)
Partnoy and Skeel (2006) revealed that the market for credit derivatives had grown from virtually nothing a decade prior to the range of $20 trillion of notional value in 2006. At this time the market for credit derivatives had become one of the largest markets in the world.
There are many types of products that can be securitized. According to Partnoy and Skeel (2006) there are two major categories of credit derivatives products. Firstly, a credit default swap (CDS) is a private contract in which private parties bet on a debt issuer’s bankruptcy, default, or restructuring. Partnoy and Skeel (2006) describe a scenario where a bank has loaned $10 million to a company. That bank might enter into a $10 million credit default swap with a third party for hedging purposes. If the company defaults on its debt, the bank will lose money on the loan, but make money on the swap; conversely, if the company does not default, the bank will make a payment to the third party, reducing its profits on the loan. This example shows that credit default swaps can be used for the purposes of hedging but they can also be used for speculation and arbitrage.
Secondly, a collateralized debt obligation (CDO) is a pool of debt contracts housed within a special purpose entity (SPE) whose capital structure is sliced and resold based on differences in credit quality, (Partnoy and Skeel 2006). In the mid 2000’s collateralized debt obligations experienced unprecedented growth, this represented the increased popularity in U.S subprime mortgages being pooled into SPE’s. Diagram 1and 2 below illustrates this surge in growth.
Original Source: Lehman Brothers
Taken from the Global Financial Stability Report 2006
3.3 The Securitization Process and the Parties Roles
The two principal types of securitisation processes used in the United States are true sale and synthetic. The International Finance Corporations (2004) report describes the process in both. In a true sale securitization, a company sells assets to a special purpose vehicle (the SPV) which funds the purchase by issuing bonds to the capital markets. Alternatively in a synthetic securitisation, the company does not sell any assets, but transfers the risk of loss associated with certain of its assets to an SPV or a bank against payment by such company of a premium or fee to the SPV. (International Finance Corporation 2004).Table 2 below shows the parties involved in a True Sale Securitisation Process.
Parties and their Roles
The International Finance Corporation (2004) describes the key parties involved in a true sale securitisation and their roles as follows;
Originator is the owner and “generator” of the assets to be securitised. Examples of Originators are banks and other financial institutions, governments and municipalities. (IFC 2004)
Seller of the assets to be securitised. In many cases, the Seller and the Originator in a transaction are identical. This is however not necessarily the case. For instance, an entity may purchase assets from its affiliates and then act as central Seller in a securitisation. (IFC 2004)
Purchaser is a special purpose vehicle (SPV) which purchases the assets to be securitised. The Purchaser funds the purchase price by issuing asset-backed securities into the capital markets (in this capacity, the Purchaser is also referred to as the Issuer). IFC (2004)
Servicer- services the assets to be securitised (frequently the Originator retains this role). Where receivables are securitised, the Servicer will collect, administer and, if necessary, enforce the receivables;
Liquidity Facility Provider according to the International Finance Corporation (2004) provides a liquidity facility in relation to certain tranches of the asset-backed securities. Typically, a liquidity facility is provided in conduit transactions where the Purchaser issues revolving short-term commercial paper to fund the purchase of the assets. The Purchaser may draw upon the liquidity facility if it is unable to refinance maturing commercial paper because of a market disruption. The liquidity facility thus secures commercial paper investors against a default in such a case. Liquidity facilities are also sometimes required in standalone securitisations. IFC (2004)
Investors are the purchasers of the asset-backed securities. Examples of investors in the securitisation market are: pension funds, banks, mutual funds, hedge funds, insurance companies, central banks, international financial institutions and corporate. IFC (2004)
Lead Manager is the arranger and structurer of the transaction. The Lead Manager is often the primary distributor of the asset-backed securities in a particular transaction. Individual distributors are also referred to as Managers. (IFC 2004)
Rating Agencies rate the asset-backed securities. The three key rating agencies in securitisation are Standard & Poor’s, Moody’s and Fitch. (IFC 2004). Rating Agencies played a huge role in the growth of securitization but Partnoy and Skeel (2006) note that despite their enormous importance to the markets, the ratings were notoriously flawed. This as will see later contributed greatly to the crisis.
Hedge Providers will hedge any currency or interest rate exposures the Issuer may have. (IFC 2004)
Cash Administrator provides banking and cash administration services to the Issuer. IFC (2004)
Security Trustee acts as a trustee for the secured creditors of the Issuer. IFC (2004)
Note Trustee acts on behalf of the holders of the asset-backed securities.
Auditors will if necessary audit the asset pool as may be required under the documentation of the relevant transaction. (IFC 2004)
*Do you know of other articles that have more definitions of the parties involved so I can have a variety of references?
3.4 Credit Rating Agencies
The International Finance Corporation (2004) states that rating agencies provide, in the context of the securitisation market, a credit rating of the asset-backed securities issued by the Issuer. A credit rating is (usually) an opinion on the likelihood that the issuer will be able to pay full principal and interest on the rated security in a timely manner in accordance with the terms of the security. The credit rating business is dominated by three agencies – Standard & Poor’s, Moody’s Investors Service and Fitch Ratings. These three have a monopoly amongst themselves as they are the only three with an official stamp of approval from the SEC (Securities and Exchange Commission), designated as nationally recognised statistical-rating organisations, or NRSROs.
Partnoy (2007) in his paper “How and Why Rating Agencies Are Not Like Other Gatekeepers” recognised that credit rating agencies continue to face conflicts of interest that are potentially more serious than those of other gatekeepers. Credit agencies continue to be paid directly by issuers, they give unsolicited ratings that at least potentially pressure issuers to pay them fees, and they market ancillary consulting services related to ratings. Also, Partnoy (2007) states that credit rating agencies increasingly focus on structured finance and new complex debt products, particularly credit derivatives, like the CDO’s mentioned earlier, which now generate a substantial share of credit rating agencies’ revenues and profits. Partnoy and Skeel (2006) reveal that some experts have suggested that CDO structurers manipulate models and the underlying portfolio in order to generate the most attractive ratings profile for a CDO. There is an inherent conflict of interest here because the greater number of high (AAA) ratings given by the rating agency to the debt product, typically guarantees a greater return. Therefore it is in the ratings agencies best interest to always error on the side of higher ratings, as opposed to lower (BBB) ratings.
In sum, Partnoy and Skeel (2006) believe CDOs present not only the numerous risks associated with credit default swaps, but also the risk that parties are spending billions of dollars in fees to buy mispriced debt. In fact, prior literature attributes the profitable practice of pooling and tranching cash flows to the presence of asymmetric information (DeMarzo (2005)), or incomplete markets (Gaur, Seshadri, and Subrahmanyam (2003)).
The main reason that credit rating agencies have been able to operate like this for so long according to Partnoy (2007) is that they have been largely immune to civil and criminal liability for malfeasance. Some rules specifically exempt credit rating agencies from liability. More important, several lower-court judges have wrongly accepted, in the opinion of Partnoy (2007) that the rating agencies’ argument that ratings are opinions protected by the First Amendment. “The raters have exploited this safe harbor for years. It allows them to pose as experts, like a doctor prescribing medicine (take a “AAA” rating and call me in the morning), without accepting full legal responsibility for their services.” By Alain Sherter, July 21, 2010- CBS Interactive Business Network
Can this quote be used?
Compared with traditional mortgage lending financed by deposits, these financial instruments increased the financial interdependence and vulnerability to runs of the financial system. (Kling (2008))
The Role of Credit Rating’s
An 18-month congressional inquiry into the debacle of credit ratings and their impact on the financial crisis identified a host of areas that were not addressed adequately. The following are the 5 leading areas of malfeasance, as summarized by the Senate subcommittee on investigations into the financial crisis and the role of credit rating agencies. http://levin.senate.gov/newsroom/release.cfm?id=324129
Competitive Pressures. Intense competition, including the drive for market share and need to accommodate investment bankers bringing in business, affected the credit ratings the agencies issued.
Failure to Reevaluate. By 2006, Moody’s and S&P’s knew their ratings of residential mortgage backed securities and CDOs were inaccurate and revised their rating models to produce more accurate ratings, but then failed to use the revised model to reevaluate existing RMBS and CDO securities. That delayed thousands of rating downgrades and allowing those securities to carry inflated ratings that could mislead investors.
Failure to factor in fraud, laxity or the housing bubble. From 2004 to 2007, Moody’s and S&P’s knew of increased credit risks due to mortgage fraud, lax underwriting standards and unsustainable housing price appreciation, but failed adequately to incorporate those factors into their credit rating models.
Inadequate resources. Despite record profits from 2004 to 2007, Moody’s and S&P failed to assign sufficient resources to adequately rate new products and test the accuracy of existing ratings.
Failed ratings. Moody’s and S&P each rated more than 10,000 RMBS securities from 2006 to 2007, downgraded a substantial number within a year, and, by 2010, had downgraded many AAA ratings to junk status.
Legal pressure for AAA ratings. Legal requirements that some regulated entities, such as banks, broker-dealers, insurance companies, pension funds and others, hold assets with AAA or investment grade credit ratings, created pressure on credit rating agencies to issue inflated ratings.
Above taken from http://levin.senate.gov/newsroom/release.cfm?id=324129
Is this allowed as part of the literature review?
Reform of Credit Rating Agencies
The reasons mentioned above show without doubt that the credit rating industry is in dire need of regulatory reform. Partnoy and Skeel (2006) sketch some preliminary ideas regarding reforms that might resolve some of the risks associated with credit derivatives. They believe that opening credit ratings to competition would resolve some of the problems. Partnoy and Skeel (2006) specifically believes an approach such as that embodied in H.R. 2990, the Credit Rating Agency Duopoly Relief Act of 2005, would increase competition by eliminating the SEC’s role in recognizing approved credit rating agencies, and substituting a registration requirement.
In addition Partnoy and Skeel (2006) believe that companies should be required to explain their investment policy/decisions with respect to credit ratings. “Both S&P and Moody’s state explicitly that ratings are not recommendations to buy and should not be the basis of investment decisions. We believe institutional investors, particularly fiduciaries, should describe the extent to which they rely on credit ratings in making investment decisions or for other purposes. In making the additional disclosures described above, institutional investors also should describe the extent to which credit ratings are relevant to their decision to use credit default swaps or CDOs. They should describe whether their internal assessment of the credit quality and risks of CDO tranches they buy are consistent with the public credit ratings of those instruments.” (Partnoy and Skeel (2006))
The financial crisis of 2007 to 2008 will go down as one of the most significant events in economic history. Large financial institutions such as Lehman Brothers and Bear Stearns failed, and stock prices plummeted. (Kling 2008)
According to Zingales (2008) the seeds of this crisis were sewn during the real estate boom in the year’s prior.
Lehman Brothers Holding Inc up until its filing for Chapter 11 bankruptcy protection was one of the world’s most prestigious investment banks with a long decorated history. It was one of the few banks to survive the Great Depression leading many to believe it was an unsinkable giant. But on September 15th 2008 it became apparent that this was not the case.
The collapse of Lehman Brother’s asides from the global financial fallout, saw thousands lose their jobs directly and millions indirectly. One former employee, Vice President Lawrence G MacDonald in his book A Colossal Failure of Common Sense: The Inside Story of the Collapse of Lehman Brothers describes what used to be Lehman’s Headquarters in New York “In light blue livery of Barclays Capital, which represents—for me, at least—the flag of an impostor, a pale substitute for the swashbuckling banner that for 158 years was slashed above the entrance to the greatest merchant bank Wall Street ever knew: Lehman Brothers.” (MacDonald (2009)) Of course this building contained the infamous 31st floor, where critical financial decisions were made by Dick Fuld and other out of touch executives in the final days of trading.
Zingales (2008) believed that the demise of Lehman Brothers was the result of its very aggressive leverage policy and attributes the roots of this policy to bad capital regulation, lack of transparency, and market complacency brought about by several years of positive returns. Zingalas (2008) cites these extremely high levels of leverage (asset-to-equity ratio) and the strong reliance on short-term debt financing, as the major factors in the failure of Lehman. While commercial banks are regulated and cannot leverage their equity more than 15 to 1, Investment banks are not thanks to the SEC vote in 2004 to ease capital requirements (Kling (2009)) .At the beginning of the crisis Lehman had a leverage of more than 30 to 1, i.e. only $3.30 of equity for every $100 of loans. (Zingales (2008)) Thus, Kling (2009) states that every major financial institution was given the green light to pile on mortgage credit risk with very little capital.
To be finished………
4.1 The Federal Reserve’s Monetary Policy under Alan Greenspan
Henderson and Hummel (2008) reveal how former Federal Reserve chairman Alan Greenspan had become everyone’s favourite scapegoat since the crisis reared its head. But Is Alan Greenspan to blame for the current housing bubble and the ongoing financial crisis? A growing chorus charges the former Federal Reserve chairman with being an “inflationist” whose loose monetary policy caused or significantly contributed to our current economic troubles. (Henderson and Hummel (2008))
Greenspan was the Federal Reserve Chairman for over twenty years and Taylor (2008) credits the Federal Reserve’s solid performance throughout the majority of Greenspan’s tenure. “Monetary policy has been much more responsive since the early 1980’s to changes in inflation and real GDP. It has also been much more predictable and systematic in its responses.” Taylor (2007) also notes that it has been well documented using the Taylor rule, that these more predictable responses achieved in the 1980’s and 1990’s helped tame inflation and have kept it steadier, thereby reducing the boom-bust cycle and the resulting large swings in interest rates that had caused the volatile housing at the time. Taylor (2007) believed that all the evidence showed that the Federal Reserve policy makers were responsible for what he referred to as an important improvement up to 2003.
Ultimately it is in the final chapter of Greenspan’s reign where the wheels are said to have come off and where interest rate decisions differed from policy descriptions. Henderson and Hummel (2008) state that critics charge Greenspan with having carried on an excessively expansionary monetary policy, particularly following the recession of 2001, brought on by the attacks of September 11th. Taylor (2007) notes how low interest rates were from 2002 through 2004 and argues that those low rates paved the way for everything from the housing crisis to the financial crisis. Taylor (2007) mentions that
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