Adelson: Data Suggest Crisis’ Causes Lie Beyond Mortgages

U.S. residential mortgages’ losses are too small to account for the 2008 financial crisis, implying they were a sign of other causes rather than the main cause, according to a new working paper a veteran industry analyst has drafted.

When asked why he wrote the paper, Mark Adelson, a former Standard & Poor’s executive, who also has worked for many years as a securities researcher for both ratings agencies and Wall Street firms, said, “I’ve observed that regular folks have somehow got the impression that mortgages made the financial crisis and that never really seemed right to me. Now enough time has gone by and enough of the numbers are in [to show] that that’s just dead, flat wrong.”

In his abstract for a working paper on the deeper causes of the crisis, Adelson estimates that the total losses on U.S. residential mortgages, including the losses realized to date and those yet to be realized, will range between $750 billion to $2 trillion; but the estimated losses related to the full global crisis are far larger at $5 trillion to $15 trillion.

Among deeper causes is deregulation in various industries that goes back decades, said Adelson, who has posted the working paper on his website.

The paper also names among deeper causes: securities firms converting from partnerships to corporations, the quant movement, the spread of risk-taking culture through the financial industry and globalization.