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Article

Abstract

This past year, 2008, was a watershed year in terms of the devastation in the United States residential housing market. Not since the Great Depression have home values fallen so far and so fast. A look at current housing market statistics such as median home prices, market inventories of existing homes, delinquency rates, and foreclosure rates suggests that it will be quite some time before the housing market returns to a sense of normalcy, with much economic pain to be felt by homeowners in the process. With the benefit of hindsight, one can see the seeds of housing market destruction were sown years ago through the deterioration of mortgage underwriting standards which inflated homeownership demand beyond sustainable levels, and the lax regulation of financial firms which facilitated the expansion of ever more complex structured finance derivative products without adequate capital requirements and risk controls. It is clear that the U.S. must now plug the gaps in its regulatory structure and take the steps necessary to provide greater transparency of financial transactions, while laying out a clear set of comprehensive rules of the game for financial firms going forward.

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