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Contents
From the Editor
Michael Woodford — The Fed’s New Communication Strategy: Is It Stealth Inflation Targeting?
John Silvia — Subprime Credit: The Evolution of a Market
Ana Aizcorbe, Stephen D. Oliner, and Daniel E. Sichel — Shifting Trends in Semiconductor Prices and the Pace of Technological Progress
Fernando Sedano — Economic Implications of Mexico’s Sudden Demographic Transition
Orges Ormanidhi and Omer Stringa — Porter’s Model of Generic Competitive Strategies
George Chressanthis — Pharmaceutical Economics
Robert P. Parker — Detailed Industry, Product, Geographic Data from the 2007 Economic Census Become Available in 2009
Book Reviews
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Subprime Credit:The Evolution of aMarket
The Subprime Lending Crisis Is Simply The Latest Variation Of A Traditional Cycle
By John Silvia
John Silvia has been chief economist of the Wachovia Corporation since 2002. Previously, he was senior economist for the U.S. Joint Economic Committee and chief economist for the U.S. Senate Banking, Housing and Urban Affairs Committee. Prior to that, he was chief economist of Kemper Funds and managing director of Scudder Kemper Investments, Inc. Silvia has been a director of NABE and serves as a member of the Blue Chip Panel of Economics Forecasters and on an informal advisory group of the Federal Reserve Bank of Philadelphia. He serves on the Economic Development Board for the State of North Carolina and has served on a number of other advisory committees. He holds a B.A. and Ph.D. in economics from Northeastern University and a Master’s degree from Brown University.
About once every decade or so economists get to witness the evolution of a credit market. In the 1970s there were mutual funds, in the 1990s there were high yield bonds, and today we have subprime lending. How do we establish a framework for a market that allows itself to undergo a quiet evolution but ends in speculation and credit revulsion? America’s latest credit cycle, subprime lending, is not a unique experience but rather the latest variation of a traditional cycle of innovation, excess, and correction that is compounded by public policy laxity and followed by overreaction. Indeed, there is little that is new or creative in the whole subprime saga. This is disappointing because the subprime credit patterns we observe are so typical that they suggest much of the recent experience could have been avoided. This provides a simple analytical framework for the sub-prime credit market. It suggests that public policy actions, taken as if the subprime lending is simply a matter of speculative excess, fail to properly address the dynamic of credit markets that we have witnessed in the financial market over the last thirty years.
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