Exercise: Looking at the Credit Crisis

Here is an exercise I worked up for discussing the mortgage-backed securities/financial crisis. Obviously, it is a gross over-simplification. However, the motives and relationships between the various parties can be discussed. Might be useful in undergraduate settings. This leaves out such structural components as the mark-to-market rule, down-tick rule, repeal of the Glass-Steagall act, etc. These structural components alone might have led to the crisis, but it seems to me the lack of moderation, transparency, and honesty between customers and loan officers is an important element.