The subprime mortgage crisis and underemployment

The  Subprime  Mortgage  Crisis and Underemployment

The subprime mortgage crisis was underlined by a number of factors both in the real-estate and the financial markets resulting

also from the inability of many housing owners to generate the required sum to meet their periodic mortgage payments.

The purpose of this presentation is to ad an important variable that had probably some negative effect  on the 2008 subprime

world crisis.

The present paper  advances an additional significant macro economic factor in explaining the subprime mortgage crisis

which caused many home owners difficulty in meeting their periodic financial obligations including their mortgage payments. Between the

years  2006  and  2008 both part-time employments and unemployments rates climbed substantially.

Under the American income-tax law interest on mortgage are

tax deductible. The effect of this tax clause is that the higher the marginal tax rate of any citizen the lower his net of tax

mortgage payment.  As a result of the hardships in employment a decline in total demand for assets occurred and the new

underemployed labor were facing difficlties in meeting their financial obligations including their mortgage payments.

It should be noted that the tax effect on the mortgage payments is substantial and can reach twenty (20) per-cent or more of

the periodic payments. This additional cash outflow to people that are forced to reduce their working positions (especially to

the unemployed ) becomes very difficult forcing them to stop mortgage payments thus adding to the 2008 subprime crisis

in the United States and later also to some extend to Europe.