A Discussion of Financial Regulations' Impact on the Subprime Crisis: Implications for Financial Markets

Abstract

The financial crisis sparked by the US subprime is now posing a serious threat to global financial markets with its severity intensifying as widening losses and a liquidity crunch push some financial institutions to the brink of failure. The US and the Western Europe seem to be falling victim to a debt spiral in which market turmoil is aggravating deterioration in the real economy. The crisis which has its roots in the closing years of the 20th century became apparent in 2007 and has exposed pervasive weaknesses in financial industry regulation and the global financial system. The subprime mortgage crisis is resulting in a sea of litigation presenting novel and significant legal problems. These issues will affect a universe of potential defendants including traditional lenders investment banks and investors. This article seeks to provide a practical understanding of how modifications to the legal and accounting regulations governing the banking value chain encouraged fragmentation and outsourcing connected with tile process of mortgage securitization. Our study will help to assess legal ramifications and litigation trends associated with the fallout with characteristics of emerging mortgage markets. We observe that in the instance of subprime mortgage woes there is no single entity or individual to be point out instead this mess is a collective creation of the world's central banks homeowners lenders credit rating agencies legal and accounting regulations underwriters hedge funds investment behavior.