Econintersect: The fall in housing prices began in 2006, followed by an increase in delinquencies on subprime mortgages. As the subprime borrowers began to default on their mortgages, the book value of these loans declined – and the balance sheets of financial business took a hit. However, it could be argued that the decline in the balance sheets was too small to account for the cascade which followed.
A article from the Philadelphia Fed discusses this, and looks at the implement remedies – as well as other solutions. It does not appear any solutions are available which do not carry risk.
[click on image below to read the entire article from the Philadelphia Fed]
