POLI 445 Lecture Notes - Lecture 21: Subprime Lending, Developing Country, Prime Rate
2 Jan 2020
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Financial activities deregulated in u. s (1980"s and 1990"s: started in reagan administration; idea of that markets are better at solving issues themselves. This idea translated into domestic policies, let banks do what they want to do and do more: restrictions of banking operations halted, let the market more determinant on how businesses operate, let them engaged, deregulation continued in 1990"s. Sub-prime means not prime customer: a normal customer have to go to bank, request for loan, they evaluate your ability to pay back so, banks will lend prime rate + market/region + customers ability to pay back. Interest rates lowered after 2000(dot-com stock bubble, then 9/11: people were betting on companies to be winner or loser. Not great understanding on how internet is going to evolve. People thought those are great investments and great deals: foreign banks started to buy mortgage packages from american banks, u. s banks created new financial instrument of mbs.
