The Comparative Study Of The Subprime Mortgage Crisis And The Savings And Loan Crisis In The United States

There are only more than 20 years between the subprime mortgage crisis that emerged in early 2007 and the savings and loan crisis (S&L crisis) that happened in the 1980s. Both crises happened in the United States, who has the best financial system in the world; both crises were caused by housing-mortgage loan products; both crises had tremendous destructive effect. From a historical perspective, there are many similarities in the reasons, processes and outcomes of these two crises. Even some details were repeated in the history. The comparative study of these two crises can better disclose the universal reason of the happening of financial crises under different risk mechanisms and different degrees of economic globalization.The housing mortgage loan market in China is in its early years and the construction of supervisory institutions’ risk-identification system and monitoring system still lags behind. The financial system is fragile. Under such conditions, we should think about how to learn from the United States’ problems that emerged in these two crises. Therefore, the paper is going to have a comparative study of the two crises, gain experience from the analysis, and explore the indications for China’s financial development.The paper adopts standard research methodology. In literature review, the paper mainly utilizes the methodology of classified summarization by summarizing the existing literature of the two crises. In the introduction to the two crises, the paper uses descriptive methodology by describing the actual situation of the two crises. In the comparative study of the two crises, the paper applies the qualitative analysis as research method in combination of cases studies in the crises, making a theoretic analysis and a reality validation on the similarities of these two crises following the clue of "raising the problem-analyzing the problem-solving the problem."By spotting and summarizing the similarities of the two crises, the paper concludes three independent but closely connected perspectives-financial innovation, moral hazard and financial regulation. With these analyzing perspectives, the paper makes relevant conclusions and proposes suggestions about how to promote the development of financial innovation in China, how to prevent financial risk, moral hazard, and how to perfect the financial regulation.The paper is divided into four chapters:Chapter One is the introduction. The chapter introduces the background and significance of the topic and makes a review of the literature at home and abroad on the two crises and finally introduces the research methodology, research clue, research range and innovations in this paper.Chapter Two gives a general overview of the two crises. For subprime mortgage crisis, the paper briefly introduces its background, breaking-out and influence, and for S&L crisis, the paper introduces its background, breaking-out, escalation, influence and solution.Chapter Three makes a comparison and an analysis of the two crises, which compare and analyze the two crises from the perspectives of financial innovation, moral hazard and financial regulation.Chapter Four is the part of comparison and conclusion. First this part makes conclusions from the three perspectives respectively, and then integrates these three perspectives, summarizes their relations and concludes the entire paper.After the comparative analysis, the paper makes the following conclusions:1. Financial innovation has great effects in enhancing the financial efficiency and promoting the development of finance. However, at the same time, there are complex risks hidden behind the innovations. When the financial instruments are making profits for the banks and investors, they are also accumulating greater risks for themselves and even for the whole national economy.2. If there is information asymmetry and mortgage, there will be moral hazard. The moral hazard is prone to cause irrational behaviors, distort the market confidence structure and at last disable the market’s function of making reactions to information that makes crisis inevitable.3. The process of government’s loosening of financial regulation and developing financial liberalization is often combined with the increasing of financial frangibility. If the relevant regulatory system weren’t established and the regulation only depended on the market, the crisis would be inevitable.4. The relationship among financial innovation, moral hazard and financial regulation is a dynamic game process. On one hand, the development of finance needs financial innovation as its driving force, and on the other hand, because of the moral hazard, the financial regulation should be strengthened continually to ensure the financial safety.For China, a country is still in its economic reform, the potential of financial innovation is great and the root of moral hazard is complicated. In the deepening of China’s finance, financial innovation cannot be restrained with the excuse of risk; the risk prevention and the importance of financial stability cannot be neglected because of encouraging innovation. The relationship among financial innovation, moral hazard and financial regulation has to be handled correctly.The research range of the paper is mainly based on the similarities of the two crises, excluding the differences. Furthermore, the analysis on the similarities is generally from three perspectives-financial innovation, moral hazard and financial regulation. The related conclusions are extended from these three perspectives. Because of the length of the paper, some other similarities are not included in this paper.Because the data collected and information gained are not comprehensive. enough, the literature on the comparative study of the two crises are not abundant enough, and there are no viewpoints and contents to consult, the study in this paper is not deep enough and the analysis still has space for deepening. There are still many aspects that can be compared in these two crises. Because of the author’s ability and the length of the paper, a few subjective or excessively generalized points of view may appear in the paper, making some conclusion not mature enough.There are two main innovations in this paper:First, large amount of literature are referred to in this paper. Starting from the root of the crises, the paper also classifies the points of relevant literature with its summarization and conclusion, forming relatively holistic and comprehensive literature review.Second, both at home and abroad, the researches on the comparative analysis of the two crises are very few at present. Some articles just made simple comparison with short passages. By its own summarization and refining, the paper makes a relatively systematic and comprehensive research and analysis on the similarities of the two crises.