Essays on the Role of Financial Intermediaries in the U.S. Financial Crisis of 2008.

摘要

This dissertation consists of three essays that examine the role that financial intermediaries played in the housing market and the credit default swap market in the years leading up to the U.S. financial crisis in 2008. The first essay studies the impact that increased mortgage lending during the 2004-2006 housing boom period had on future 2007-2009 home price crashes in Florida. The second essay focuses on the predictability of home prices prior to 2006 and looks at how bank lending across different metropolitan statistical areas responded to past increases in home prices in 2006. The third essay turns to the credit default swap market and investigates how the market perceived investment bank counterparty risk by analyzing credit default swap prices during the time period leading up to and immediately after the collapse of Bear Stearns in 2008.;In the first essay, "Loan Supply and Home Price Crashes: Evidence from Florida," I examine whether neighborhoods that experienced higher loan growth during the recent housing bubble later experienced larger home price crashes when the bubble burst. I use microeconomic data on mortgages and home sales to answer this question in Florida. A simple OLS regression reveals that, within Florida's metropolitan statistical areas, a 1 percent increase in 2004 to 2006 census tract loan growth is associated with a relatively modest 0.1 percent decline in 2007 to 2010 census tract home prices. However, this exercise ignores the fact that loan growth may be driven by demand as well as supply factors. Using information on bank lending practices outside of Florida, I am able to isolate changes in loan growth that are uncorrelated with local demand. From the more sophisticated analysis, I find that a 1 percent increase in earlier loan growth actually results in a 0.9 percent decline in home prices. I find some evidence that supply-driven loan growth led to greater home price crashes by pushing home prices up to unsustainable levels. These results contribute to an understanding of the relationship between credit booms and financial crises by linking loan growth to asset prices.;In the second essay, "The Subprime Crisis and House Price Appreciation," (co-authored with William Goetzmann and Liang Peng) we argue that econometric analysis of housing price indexes before 2006 generated forecasts of future long-term price growth and low estimated probabilities of extreme price decreases. These forecasts of future increases in home-loan collateral values may have affected both the demand and the supply of mortgages. Standard time series models using repeat-sales indexes suggest that positive trends had a long half-life. Expectations based on such models support expectations that could lead to an asset bubble. Analysis of data from the HMDA loan database and LoanPerformance.com at the MSA level and at the loan level substantiates the effects of past price trends on the demand and supply of subprime mortgages. On the demand side, at the MSA level, past home price increases are associated with more subprime applications, higher loan to income ratios and lower loan to value ratios of applications for both prime and subprime mortgages. This is consistent with the notion that households not only borrowed more but also invested more in home equity conditional on greater past house price increases. On the supply side, past home price appreciation had a significantly greater impact on the approval rate of subprime applications than the approval rate of prime applications. Loan level analysis indicates that past home price appreciation increased the approval rate of subprime applications but did not affect the approval rate of prime applications. Further, approved HMDA subprime loans had higher loan to income ratios in MSAs with greater past house price trends.;In the last essay, "Counterparty Risk in the Credit Default Swap Market," I use a panel data set of credit default swap (CDS) spreads that covers 157 companies over 188 weeks from 2005 to 2008 to test whether counterparty risk in the CDS market, as measured by the financial health of the major CDS dealers, has an effect on market-wide CDS spreads. The results suggest that after controlling for changes in firm and market conditions, a rise in counterparty risk increases CDS spreads of investment grade firms. Counterparty risk's ability to explain changes in CDS spreads of investment grade firms remains the same before and after the Bear Stearns crisis, suggesting that perhaps investors were unprepared when Lehman Brothers was not saved by the Fed and went bankrupt six months later.