Keynote Address: Understanding the ‘Subprime’ Financial Crisis

Document Type



The most up-to-date version of this piece can be found in the Duke Law Scholarship

published at, 60 South Carolina Law Review 549-572 (2009) (Symposium on the Subprime Mortgage Crisis)


This short and accessible paper, based on a keynote speech for a law review symposium, addresses how and why the financial crisis occurred and what should be done to avoid future crises. Among other things, the paper explains why neither the making of subprime mortgages nor the originate-and-distribute model pursuant to which these mortgages were monetized was per se evil; why the governmental regulatory structure failed to deter the crisis; and why the governmental bailout plan under the Emergency Economic Stabilization Act is critically needed and where it may be deficient. The paper also explains the difficulties in valuing mortgage-backed securities and in locating the ultimate holders of risk under credit default swaps and the relationship between financial market breakdown and counterparty risk.

Date of Authorship for this Version



subprime, capital markets, bailout, TARP