Monetary Policy, Credit Policy, Asset Securitization, Income Distribution And Sub-prime Mortgage Crisis: A Literature Review

The New Century Finance bankrupted On March 2007, which opened the prelude of the subprime mortgage crisis. As the crisis has spread from the United States to the whole world, international banking giants have suffered huge losses, and also the U.S. stock market crashed dramatically. At present, the crisis affected the real economy and many foreign scholars regarded the destructive of the crisis as the same as the Great Depression in 1930s.On the other hand, there are some foreign scholars believed that the crisis has a moderate influence on the U.S. economy and the world economy, compared with the previous financial crisis in history. Especially they suggested that the subprime losses relative to the United States are not much in terms of economies of scale. Because these debates on the subprime mortgage crisis are still existing, it is necessary to recognize the impact of the crisis completely, especially for the direct influence to U.S. Economy and its spread mechanism. Furthermore, For China is in the process of financial liberalization, it is worthwhile to find the real causes which initiated the sub-prime crisis. Only in this way can we prevent future financial risk and promote the stability of Chinese economy. All in all, it is beneficial to analyze the causes and influences of the U.S. subprime mortgage crisis, which may have both theoretical value and practical significance.In order to understand the U.S. subprime mortgage crisis thoroughly, the paper collects the relevant literatures and sorts these materials as much as possible. I supposed that these researches can be divided into two categories:one is that the researchers believed that that the U.S. subprime mortgage crisis has a major impact on the U.S. economy and the world economy; the others asserted that the impact of the crisis is limited, and the negative influence is not as great as some scholars imagined.Of course, the article pays more attention on the causes of the subprime mortgage crisis. So, we have chosen the three currency crisis models which were developed to explain the mechanism of the financial crises and review each of them in order to get some valuable information about the transition mechanism of the financial crises. These three models of currency crises contains (1973～1982) model of currency crises in Mexico and Argentina, (1992-1993) model and the European currency crisis (1997-1998) model of the Asian financial crisis. By examining the theory of financial crisis, it is natural to find that although these theoretical models concern their own perspectives and have some limitations for explaining the crisis, these three different theoretical models and theories can provide useful reference for recognizing the crisis and its spread mechanism. In this paper, we take the four different perspectives including the monetary policy, credit policy, asset securitization and income distribution, to analyze the causes and transmission mechanism of the Subprime mortgage crisis.