How to Deal with Failing Financial Institutions

Policymakers at the Federal Reserve and in the Bush administration were slow to admit they had a mortgage mess on their hands. Foreclosure rates are shattering previous records, just to be broken a few months later. The Mortgage Bankers Association reports that the share of mortgages that entered foreclosure in the second quarter of 2008 stood at 1.1 percent, and the share of all mortgages in foreclosure was 2.8 percent during the same period. Since the 1970s, the share of mortgages entering foreclosure never exceeded 0.5 percent before the end of 2006, and the share of total mortgages in foreclosure never exceeded 1.5 percent before the second half of 2007.

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