Charts of the Day

From a March 31st paper by Goldman Sachs called "Effective Regulation: Avoiding Another Meltdown", following a showing that--after 2000--increased foreign exchange reserves (especially in Asia) and high oil prices caused an spike in global savings at a time when U.S. interest rates (especially Treasury bonds) were low:

The impact of this influx of capital on global housing markets is easily seen. . .

• Mortgage originations soared. Mortgage financing expanded dramatically during the first half of the decade. In the United States, for example, mortgage origination as a percentage of total mortgage debt outstanding surged to an average rate of 10.0% from 2001-2006 (see Exhibit 11), up significantly from the average rate of 6.3% from 1985-2000.


source: Goldman Sachs, page 15


• Lending standards eroded sharply. In the United States, the erosion of lending standards was visible in the increase in the number of subprime mortgages that were issued. The share of subprime mortgages rose from 2% to 14% of the total between 2000 and 2007. See Exhibits 12 and 13. It was also visible in lax standards for documentation of information like income and assets. Further, loan-to-valuation (LTV) ratios on new mortgages increased significantly, with the issuance of 100% financing (e.g. no down payment) mortgages increasing dramatically. In parts of the United States, even negative down payments were available! The increase in arrears that occurred even prior to the decline in house prices is yet another indicator of how loose lending standards had become during the boom.


source: Goldman Sachs, page 16


source: Goldman Sachs, page 17

There's lots of data and ideas in this paper; I'll be posting other charts and analysis later today.

(via EconLog)