The United States subprime mortgage crisis was a set of events and
conditions that led to a financial crisis and subsequent recession that
began in 2008. It was characterized by a rise in subprime mortgage
delinquencies and foreclosures, and the resulting decline of securities
backed by said mortgages. These mortgage-backed securities (MBS) and
collateralized debt obligations (CDO) initially offered attractive rates
of return due to the higher interest rates on the mortgages; however,
the lower credit quality ultimately caused massive defaults. Several
major financial institutions collapsed in September 2008, with
significant disruption in the flow of credit to businesses and consumers
and the onset of a severe global recession.
There were
many causes of the crisis, with commentators assigning different levels
of blame to financial institutions, regulators, credit agencies,
government housing policies, and consumers, among others. A proximate
cause was the rise in subprime lending. The percentage of lower-quality
subprime mortgages originated during a given year rose from the
historical 8% or lower range to approximately 20% from 2004 to 2006,
with much higher ratios in some parts o the U.S. A high percentage of
these subprime mortgages, over 90% in 006, for example were
adjustable-rate mortgages (ARM). These two changes were part of a
broader trend of lowered lending standards and higher-risk mortgage
products. Further, U.S. households had become increasingly indebted,
with the ratio of debt to disposable personal income rising from 77% in
1990 to 127% at the end of 2007, much of this increase mortgage-related.
When
U.S. home prices declined steeply after peaking in mid-2006, it became
more difficult for borrowers to refinance their loans. As
adjustable-rate mortgages began to reset at higher interest rates
(causing higher monthly payments), mortgage delinquencies soared.
Securities backed with mortgages, including subprime mortgages, widely
held by financial firms globally, lost most of their value. Global
investors also drastically reduced purchases of mortgage-backed debt and
other securities as part of a decline in the capacity and willingness
of the private financial system to support lending. Concerns about the
soundness of U.S. credit and financial markets led to tightening credit
around the world and slowing economic growth in the U.S. and Europe.
The
crisis had severe, long-lasting consequences for the U.S. and European
economies. The U.S. entered a deep recession, with nearly 9 million jobs
lost during 2008 and 2009, roughly 6% of the workforce. U.S. housing
prices fell nearly 30% on average and the U.S. stock market fell
approximately 50% by early 2009. As early 013, the U.S. stock market had
recovered to its pre-crisis peak but housing prices remained near their
low point and unemployment remained elevated. Economic growth remained
below pre-crisis levels. Europe also continued to struggle with its own
economic crisis, elevated unemployment and severe banking impairments
(estimated at €940 billion between 2008 and 2012).
Background and timeline of events
The
immediate cause or trigger of the crisis was the bursting of the United
States housing bubble with peaked in approximately 2005-2006. An
increase in loan incentives such as easy initial terms and a long-term
trend of rising housing prices had encouraged borrowers to assume risky
mortgages in the anticipation that they would be able to quickly
refinance at easier terms. However, once interest rates began to rise
and housing prices started to drop moderately in 2006-2007 in many parts
of the U.S., borrowers were unable to refinance. Defaults and
foreclosure activity increased dramatically as easy initial terms
expired, home prices fell, and ARM interest rates reset higher. Falling
prices also resulted in 23% of U.S. homes worth less than the mortgage
loan by September 2010, providing a financial incentive for borrowers to
enter foreclosure. The ongoing foreclosure epidemic, of which subprime
loans are one part, that began in late 006 in the U.S. continues to be
key factor in the global economic crisis, because it drains wealth from
consumers and erodes the financial strength of banking institutions.
Several
other factors set the stage for the rise and fall of housing prices
related securities widely held by financial firms. In the years leading
up to the crisis, the U.S. received large amounts of foreign money from
fast-growing economies in Asia and oil-producing/exporting countries.
This inflow of funds combined with low U.S. interest rates from
2002-2004 contributed to easy credit conditions, which fueled both
housing and credit bubbles. Loans of various types (e.g., mortgage,
credit card, and auto) were easy to obtain and consumers assumed an
unprecedented debt load.
As part of the housing and
credit booms, the amount of financial agreements called mortgage-backed
securities (MBS), which derive their value from mortgage payments and
housing prices, greatly increased. Such financial innovation enabled
institutions and investors around the world to invest in the U.S.
housing market. As housing prices declined, major global financial
institutions that had borrowed and invested heavily in MBS reported
significant losses. Defaults and losses on other loan types also
increased significantly as the crisis expanded from the housing market
to other parts of the economy. Total losses were estimated in the
trillions of U.S. dollars globally.
While the housing
and credit bubbles were growing, a series of factors caused the
financial system to become increasingly fragile. Policymakers did not
recognize the increasingly important role played by financial
institutions such as investment banks and hedge funds, also known as the
shadow banking system. Shadow banks were able to mask the extent of
their risk taking from investors and regulators through the use of
complex, off-balance sheet derivatives and securitizations.
These
instruments also made it virtually impossible to reorganize financial
institutions in bankruptcy, and contributed to the need for government
bailouts. Some experts believe these shadow institutions had become as
important as commercial (depository) banks in providing credit to the
U.S. economy, but they were not subject to the same regulations. These
institutions as well as certain regulated banks had also assumed
significant debt burdens while providing the loans described above and
did not have a financial cushion sufficient to absorb large loan
defaults or MBS losses.
These losses impacted the
ability of financial institutions to lend, slowing economic activity.
Concerns regarding the stability of key financial institutions drove
central banks to take action to provide funds to encourage lending and
to restore faith in the commercial paper markets, which are integral to
funding business operations. Governments also bailed out key financial
institutions, assuming significant additional financial commitments.
The
risks to the broader economy created by the housing market downturn and
subsequent financial market crisis were primary factors in several
decisions by central banks around the world to cut interest rates and
governments to implement economic stimulus packages. Effects on global
stock markets due to the crisis have been dramatic. Between 1 January
and 11 October 2008, owners of stocks in U.S. corporations had suffered
about $8 trillion in losses, as their holding declined in value from $20
trillion to $12 trillion. Losses in other countries have averaged about
40%.
Losses in the stock market and housing value
declines place further downward pressure on consumer spending, a key
economic engine. Leaders of the larger developed and emerging nations
met in November 2008 and March 2009 to formulate strategies for
addressing the crisis. A variety of solutions have been proposed by
government officials, central bankers, economists, and business
executives. In the U.S., the Dodd-Frank Wall Street Reform and Consumer
Protection Act was signed into law in July 2010 to address some of the
causes of the crisis.
Mortgage market
Subprime
borrowers typically have weakened credit histories and reduced
repayment capacity. Subprime loans have a higher risk of default than
loans to prime borrowers. If a borrower is delinquent in making timely
mortgage payments to the loan servicer (a bank or other financial firm),
the lender may take possession of the property, in a process called
foreclosure.
The value of American subprime mortgages
was estimated at $1.3 trillion as of March 2007, with over 7.5 million
first-lien subprime mortgages outstanding. Between 2004 and 2006, the
share of subprime mortgages relative to total originations ranged from
18%-21%, versus less than 10% in 2001-2003 and during 2007. The boom in
mortgage lending, including subprime lending, was also driven by a fast
expansion of non-bank independent mortgage originators which despite
their smaller share (around 25 percent in 2002) in the market have
contributed to around 20 percent of the increase in mortgage credit
between 2003 and 2005. In the third quarter of 2007, subprime ARMs
making up only 6.8% of USA mortgages outstanding also accounted for 43%
of the foreclosures which began during that quarter.
By
October 2007, approximately 16% of subprime ARMs were either 90-days
delinquent or the lender had begun foreclosure proceedings, roughly
triple the rate of 2005. By January 2008, the delinquency rate had risen
to 21% and by May 2008 it was 25%.
According to
RealtyTrac, the value of all outstanding residential mortgages, owed by
U.S. households to purchase residences housing at most four families,
was US$9.9 trillion as of year-end 2006, and US$10.6 trillion as of
midyear 2008. During 2007, lenders had begun foreclosure proceedings on
nearly 1.3 million properties, a 79% increase over 2006. This increased
to 2.3 million in 2008, an 81% increase vs. 2007, and again to 2.8
million in 2009, a 21% increase vs. 2008.
By August
2008, 9.2% of all U.S. mortgages outstanding were either delinquent or
in foreclosure. By September 2009, this had risen to 14.4%. Between
August 2007 and October 2008, 936,439 USA residences completed
foreclosure. Foreclosures are concentrated in particular states both in
terms of the number and rate of foreclosure filings. Ten states
accounted for 74% of the foreclosure filings during 2008; the top two
(California and Florida) represented 41%. Nine states were above the
national foreclosure rate average of 1.84% of households.
From
September 2008 to September 2012, there were approximately 4 million
completed foreclosures in the U.S. AS of September 2012, approximately
1.4 million homes, or 3.3% of all homes with a mortgage, were in some
stage of foreclosure compared with 1.5 million or 3.5%, in September
2011. During September 2012, 57,000 homes completed foreclosure; this is
down from 83,000 prior September but well above the 2000-2006 average
of 21,000 completed foreclosures per month.
Sources:
http://en.wikipedia.org/wiki/Subprime_mortgage_crisis
Monday, September 30, 2013
Friday, September 20, 2013
U.S. housing bubble
The United States housing bubble is an economic bubble affecting many parts of the United States housing market in over half of American states. Housing prices peaked in early 2006, started to decline in 2006 and 2007, and reached new lows in 2012. The credit crises resulting from the bursting of the bubble is – according to general consensus – the primary cause of the 2007-2009 recession in the United States.
Increased foreclosure rates in 2006-2007 among U.S. homeowners led to a crisis in August 2008 for the subprime, Alt-A, collaterized debt obligation (CDO), mortgage, credit, hedge fund, and foreign bank markets. In October 2007, the U.S. Secretary of the Treasury called the bursting housing bubble “the most significant risk to our economy.”
Any collapse of the U.S. housing bubble has a direct impact not only on home valuations, but the nation’s mortgage markets, home builders, real estate, home supply retail outlets, Wall Street hedge funds held by large institutional investors, and foreign banks, increasing the risk of a nationwide recession. Concerns about the impact of the collapsing housing and credit markets on the larger U.S. economy caused President George W. Bush and the Chairman of the Federal Reserve Ben Bernanke to announce a limited bailout of the U.S. housing market for homeowners who were unable to pay their mortgage debts.
In 2008 alone, the United States government allocated over $900 billion to special loans and rescues related to the U.S. housing bubble, with over half going to Fannie Mae and Freddie Mac (both of which ware government-sponsored enterprises) as well as the Federal Housing Administration (which is a United States Government agency). On December 24, 2009, the Treasury Department made an unprecedented announcement that it would be providing Fannie Mae and Freddie Mac unlimited financial support for the next three years despite acknowledging losses in excess of $400 billion so far.
Background
Housing bubbles may occur in local or global real estate markets. In their late stages, they are typically characterized by rapid increases in the valuations of real property until unsustainable levels are reached relative to incomes, price-to-rent ratios, and other economic indicators of affordability. This may be followed by decreases in home prices that result in many owners finding themselves in a position of negative equity – a mortgage debt higher than the value of the property. The underlying causes of the housing bubble are complex. Factors include tax policy (exemption of housing from capital gains), historically low interest rates, lax lending standards, failure of regulators to intervene, and speculative fever.
While bubbles may be identifiable in progress, bubbles can be indefinitely measured only in hindsight after a market correction, which in the U.S. housing market began in 2005-2006. Former U.S. Federal Reserve Board Chairman Alan Greenspan said “We had a bubble in housing”, and also said in the wake of the subprime mortgage and credit crises in 2007, “I really didn’t get it until very late in 2005 and 2006.”
The mortgage and credit crises was caused by the inability of a large number of home owners to pay their mortgages as their low introductory-rate mortgages reverted to regular interest rates. Freddie Mac CEO Richard Syron concluded, “We had a bubble”, and concurred with Yale economist Robert Shiller’s warning that home prices appear overvalued and that the correction could last years, with trillions of dollars of home value being lost.
Problems for home owners with good credit surfaced in mid-2007, causing the U.S.’s largest mortgage lender, Countrywide Financial, to warn that a recovery in the housing sector was not expected to occur at least until 2009 because home prices were falling “almost like never before, with the exception of the Great Depression.” The impact of booming home valuations on the U.S. economy since the 2001-2002 recession was an important factor in the recovery, because a large component of consumer spending was fueled by the related refinancing boom, which allowed people to both reduce their monthly mortgage payments with lower interest rates and withdraw equity from their homes as their value increased.
Identification
The burst of the housing bubble was predicted by a handful of political and economic analysts, such as G. Edward Griffinin in his 1994 book, “The Creature from Jekyll Island,” and Jeffery Robert Hunn in a March 3, 2003, editorial. Hunn wrote:
“[W]e can profit from the collapse of the credit bubble and subsequent stock market divestment [(decline)]. However, real estate has not yet joined in a decline of prices fed by selling (and foreclosing). Unless you have a very specific reason to believe that real estate will outperform all other investments for several years, you may deem this prime time to liquidate investment property (for use in more lucrative markets).”
Many contested any suggestion that there could be a housing bubble, particularly at its pea from 2004 to 2006, with some rejecting the “house bubble” label in 2008. Claims that there was no warning of the crisis were further repudiated in an August 2008 article in the New York Times, which reported that in mid-2004 Richard Syron, the CEO of Freddie Ma, received a memo from David Andrukonis, the company’s former chief risk officer, warning that Freddie Mac was financing risk-laden loans that threatened Freddie Mac’s financial stability. In his memo, Mr. Andrukonis wrote that these loans “would likely pose an enormous financial and reputational risk to the company and the country.” The article revealed that more than two dozen high-ranking executives said that Mr. Syron had simply decided to ignore the warnings.
Other cautions came as early as 2001, when the late Federal Reserve governor Edward Gramlich warned of the risks posed by subprime mortgages. In September 2003, at a hearing of the House Financial Services Committee, Congressman Ron Paul identified the housing bubble and foretold the difficulties it would cause: “Like all artificially-created bubbles, the boom in housing prices cannot last forever. When housing prices fall, the homeowners will experience difficulty as their equity is wiped out. Furthermore, the holders of the mortgage debt will also have a loss.” Reuters reported in October 2007 that a Merrill Lynch analyst too had warned in 2006 that companies could suffer from their subprime investments.
The Economist magazine stated, “The worldwide rise in house prices is the biggest bubble in history,” so any explanation needs to consider its global causes as well as those specific to the United States. The then Federal Reserve Board Chairman Alan Greenspan said in mid-2005 that “at a minimum, there’s a little ‘froth’ (in the U.S. housing market) … it’s hard not to see that there are a lot of local bubbles”. Greenspan admitted in 2007 that froth “was a euphemism for a bubble.
Throughout the bubble period there was little if any mention of the fact that housing in many areas was (and still is) selling for well above replacement cost.
On the basis of 2006 market data that were indicating a marked decline, including lower sales, rising inventories, falling median prices and increased foreclosure rates, some economists have concluded that the correction in the U.S. housing market began in 2006. A May 2006 Fortune magazine report on the U.S. housing bubble states: “The great housing bubble has finally started to deflate … In many once-sizzling markets around the country, accounts of dropping list prices have replaced tales of waiting lists for unbuilt condos and bidding wars over humdrum three-bedroom colonials.”
The chief economist of Freddie Mac and the director of Joint Center for Housing Studies (JCHS) denied the existence of a national housing bubble and expressed doubt that any significant decline in home prices was possible, citing consistently rising prices since the Great Depression, an anticipated increased demand from the Baby Boom generation, and healthy levels of employment. However, some have suggested that the funding received from JCHS from the real estate industry may have affected their judgment. David Lereah, former chief economist of the National Association of Realtors (NAR), distributed “Anti-Bubble Reports” in August 2005 to “respond to the irresponsible bubble accusations made by your local media and local academics.”
Among other stages, the reports stated that people “should [not] be concerned that home prices are rising faster than family income”, that “there is virtually no risk of a national housing price bubble based on the fundamental demand for housing and predictable economic factors”, and that “a general slowing in the rate of price growth can be expected but in many areas inventory shortages will persist and home prices are likely to continue to rise above historic norms.” Following reports of rapid sales declines and price depreciation in August 2006, Lereah admitted that the expected “home prices to come down 5% nationally, more in some markets, less in others. And a few cities in Florida and California, where home prices soared to nose-bleed heights, could have ‘hard landings’.”
John A. Kilpatrick, of Greenfield Advisors, was cited by Bloomberg News on June 14, 2007, on the linkage between increased foreclosures and localized housing price declines: “Living in an area with multiple foreclosures can result in a 10 per cent to 20 per cent decrease in property values.” He went to say, “In some cases that can wipe out the equity of homeowners or leave them owing more on their mortgage than the house is worth. The innocent houses that just happen to be sitting next to those properties are going to take a hit.”
The U.S. Senate Banking Committee held hearings on the housing bubble and related loan practices in 2006, titled “The Housing Bubble and its implications for the Economy” and “Calculated Risk: Assessing Non-Traditional Mortgage Products”. Following the collapse of the subprime mortgage industry in March 2007, Senator Chris Dodd, the Chairman of the Banking Committee held hearings and asked executives from the top five subprime mortgage companies to testify and explain their lending practices. Dodd said that “predatory lending practices” had endangered home ownership for millions of people. In additional, Democratic senators such as Senator Charles Schumer of New York were already proposing a federal government bailout of subprime borrowers in order to save homeowners from losing their residences.
Causes
Observers and analysts have attributed the reasons for the 2001-2006 housing bubble and its 2007-10 collapse in the United Stages to “everyone from home buyers to Wall Street, mortgage brokers to Alan Greenspan”. Other factors that are named included “Mortgage underwriters, investment banks, rating agencies, and investors”, “low mortgage interest rates, low short-term interest rates, relaxed standards for mortgage loans, and irrational exuberance.” Politicians in both the Democratic and Republican parties have been cited for “pushing to keep derivatives unregulated” and “with rare exceptions” giving Fannie Mae and Freddie Mac “unwavering support”.
Extent
Home price appreciation has been non-uniform to such an extent that some economists, including former Fed Chairman Alan Greenspan, have argued that United States was not experiencing a nationwide housing bubble per se, but a number of local bubbles. However, in 2007 Greenspan admitted that there was in fact a bubble in the U.S. housing market, and that “all the froth bubbles add up to an aggregate bubble.”
Despite greatly relaxed lending standards and low interest rates, many regions of the country saw very little growth during the “bubble period”. Out of 20 largest metropolitan areas tracked by the S&P/Case-Shiller house price index, six (Dallas, Cleveland, Detroit, Denver, Atlanta, and Charlotte) saw less than 10% price growth in inflation-adjusted terms in 2001-2006. During the same period, seven metropolitan areas (Tampa, Miami, San Diego, Los Angeles, Las Vegas, Phoenix, and Washington, D.C.) appreciated by more than 80%.
Somewhat paradoxically, as the housing bubble deflates some metropolitan areas (such as Denver and Atlanta) have been experiencing high foreclosure rates, even though they did not see much house appreciation in the first place and therefore did not appear to be contributing to the national bubble. This was also true of some cities in the Rust Belt such as Detroit and Cleveland, were weak local economies had produced little house price appreciation early in the decade but still saw declining values and increased foreclosures in 2007. As of January 2009, California, Michigan, Ohio and Florida were the states with the highest foreclosure rates.
By July 2008, year-to-date prices had declined in 24 of U.S. metropolitan areas, with California and the southwest experiencing the greatest price falls. According to the reports, only Milwaukee had seen an increase in house prices after July 2007.
Side effects
Prior to the real estate market correction of 2006-2007, the unprecedented increase in house prices starting in 1997 produced numerous wide-ranging effects in the economy of the United States.
The share prices of Fannie Mae and Freddie Mac plummeted in 2008 as investors worried that they lacked sufficient capital to cover the losses on their $5 trillion portfolio of loans and loan guarantees. On June 16, 2010 it was announced that Fannie Mae and Freddie Mac would be delisted from the New York Stock Exchange; shares now trade on over-the-counter market.
Housing market correction
Basing their statements on historic U.S. housing valuation trends, in 2005 and 2006 many economist and business writers predicted market corrections ranging from a few percentage points to 50% or more from peak values in some markets, and although this cooling had yet not affected all areas for the U.S., some warned that it still could, and that the correction would be “nasty” and “severe”. Chief economist Mark Zandi of the economic research firm Moody’s Economy.com predicted a “crash” of double-digit depreciation in some U.S. cities by 2007-209. In a paper he presented to a Federal Reserve Board economic symposium in August 2007, Yale University economist Robert Shiller warned, “The examples we have of past cycles indicate that major declines in real home prices-even 50 per cent declines in some places-are entirely possible going forward from today or form the not-too-distant-future.”
To better understand how the mortgage crisis played out, a 2012 report from the Universality of Michigan analyzed data from the Panel Study of Income Dynamics (PSID), which surveyed roughly 9,000 representative households in 2009 and 2011. The data seem to indicate that, while conditions are still difficult, in some ways the crisis is easing: Over the period studied , the percentage of families behind on mortgage payments fell from 2.2 to 1.9; homeowners who thought it was “very likely or somewhat likely” that they would fall behind on payments fell from 6% to 4.6% of families. On the other hand, family’s financial liquidity has decreased: “As of 2009, 18.5% of families had no liquid assets, and by 2011 this had grown to 23.4% families.”
Sources:
http://en.wikipedia.org/wiki/U.S._housing_bubble
Increased foreclosure rates in 2006-2007 among U.S. homeowners led to a crisis in August 2008 for the subprime, Alt-A, collaterized debt obligation (CDO), mortgage, credit, hedge fund, and foreign bank markets. In October 2007, the U.S. Secretary of the Treasury called the bursting housing bubble “the most significant risk to our economy.”
Any collapse of the U.S. housing bubble has a direct impact not only on home valuations, but the nation’s mortgage markets, home builders, real estate, home supply retail outlets, Wall Street hedge funds held by large institutional investors, and foreign banks, increasing the risk of a nationwide recession. Concerns about the impact of the collapsing housing and credit markets on the larger U.S. economy caused President George W. Bush and the Chairman of the Federal Reserve Ben Bernanke to announce a limited bailout of the U.S. housing market for homeowners who were unable to pay their mortgage debts.
In 2008 alone, the United States government allocated over $900 billion to special loans and rescues related to the U.S. housing bubble, with over half going to Fannie Mae and Freddie Mac (both of which ware government-sponsored enterprises) as well as the Federal Housing Administration (which is a United States Government agency). On December 24, 2009, the Treasury Department made an unprecedented announcement that it would be providing Fannie Mae and Freddie Mac unlimited financial support for the next three years despite acknowledging losses in excess of $400 billion so far.
Background
Housing bubbles may occur in local or global real estate markets. In their late stages, they are typically characterized by rapid increases in the valuations of real property until unsustainable levels are reached relative to incomes, price-to-rent ratios, and other economic indicators of affordability. This may be followed by decreases in home prices that result in many owners finding themselves in a position of negative equity – a mortgage debt higher than the value of the property. The underlying causes of the housing bubble are complex. Factors include tax policy (exemption of housing from capital gains), historically low interest rates, lax lending standards, failure of regulators to intervene, and speculative fever.
While bubbles may be identifiable in progress, bubbles can be indefinitely measured only in hindsight after a market correction, which in the U.S. housing market began in 2005-2006. Former U.S. Federal Reserve Board Chairman Alan Greenspan said “We had a bubble in housing”, and also said in the wake of the subprime mortgage and credit crises in 2007, “I really didn’t get it until very late in 2005 and 2006.”
The mortgage and credit crises was caused by the inability of a large number of home owners to pay their mortgages as their low introductory-rate mortgages reverted to regular interest rates. Freddie Mac CEO Richard Syron concluded, “We had a bubble”, and concurred with Yale economist Robert Shiller’s warning that home prices appear overvalued and that the correction could last years, with trillions of dollars of home value being lost.
Problems for home owners with good credit surfaced in mid-2007, causing the U.S.’s largest mortgage lender, Countrywide Financial, to warn that a recovery in the housing sector was not expected to occur at least until 2009 because home prices were falling “almost like never before, with the exception of the Great Depression.” The impact of booming home valuations on the U.S. economy since the 2001-2002 recession was an important factor in the recovery, because a large component of consumer spending was fueled by the related refinancing boom, which allowed people to both reduce their monthly mortgage payments with lower interest rates and withdraw equity from their homes as their value increased.
Identification
The burst of the housing bubble was predicted by a handful of political and economic analysts, such as G. Edward Griffinin in his 1994 book, “The Creature from Jekyll Island,” and Jeffery Robert Hunn in a March 3, 2003, editorial. Hunn wrote:
“[W]e can profit from the collapse of the credit bubble and subsequent stock market divestment [(decline)]. However, real estate has not yet joined in a decline of prices fed by selling (and foreclosing). Unless you have a very specific reason to believe that real estate will outperform all other investments for several years, you may deem this prime time to liquidate investment property (for use in more lucrative markets).”
Many contested any suggestion that there could be a housing bubble, particularly at its pea from 2004 to 2006, with some rejecting the “house bubble” label in 2008. Claims that there was no warning of the crisis were further repudiated in an August 2008 article in the New York Times, which reported that in mid-2004 Richard Syron, the CEO of Freddie Ma, received a memo from David Andrukonis, the company’s former chief risk officer, warning that Freddie Mac was financing risk-laden loans that threatened Freddie Mac’s financial stability. In his memo, Mr. Andrukonis wrote that these loans “would likely pose an enormous financial and reputational risk to the company and the country.” The article revealed that more than two dozen high-ranking executives said that Mr. Syron had simply decided to ignore the warnings.
Other cautions came as early as 2001, when the late Federal Reserve governor Edward Gramlich warned of the risks posed by subprime mortgages. In September 2003, at a hearing of the House Financial Services Committee, Congressman Ron Paul identified the housing bubble and foretold the difficulties it would cause: “Like all artificially-created bubbles, the boom in housing prices cannot last forever. When housing prices fall, the homeowners will experience difficulty as their equity is wiped out. Furthermore, the holders of the mortgage debt will also have a loss.” Reuters reported in October 2007 that a Merrill Lynch analyst too had warned in 2006 that companies could suffer from their subprime investments.
The Economist magazine stated, “The worldwide rise in house prices is the biggest bubble in history,” so any explanation needs to consider its global causes as well as those specific to the United States. The then Federal Reserve Board Chairman Alan Greenspan said in mid-2005 that “at a minimum, there’s a little ‘froth’ (in the U.S. housing market) … it’s hard not to see that there are a lot of local bubbles”. Greenspan admitted in 2007 that froth “was a euphemism for a bubble.
Throughout the bubble period there was little if any mention of the fact that housing in many areas was (and still is) selling for well above replacement cost.
On the basis of 2006 market data that were indicating a marked decline, including lower sales, rising inventories, falling median prices and increased foreclosure rates, some economists have concluded that the correction in the U.S. housing market began in 2006. A May 2006 Fortune magazine report on the U.S. housing bubble states: “The great housing bubble has finally started to deflate … In many once-sizzling markets around the country, accounts of dropping list prices have replaced tales of waiting lists for unbuilt condos and bidding wars over humdrum three-bedroom colonials.”
The chief economist of Freddie Mac and the director of Joint Center for Housing Studies (JCHS) denied the existence of a national housing bubble and expressed doubt that any significant decline in home prices was possible, citing consistently rising prices since the Great Depression, an anticipated increased demand from the Baby Boom generation, and healthy levels of employment. However, some have suggested that the funding received from JCHS from the real estate industry may have affected their judgment. David Lereah, former chief economist of the National Association of Realtors (NAR), distributed “Anti-Bubble Reports” in August 2005 to “respond to the irresponsible bubble accusations made by your local media and local academics.”
Among other stages, the reports stated that people “should [not] be concerned that home prices are rising faster than family income”, that “there is virtually no risk of a national housing price bubble based on the fundamental demand for housing and predictable economic factors”, and that “a general slowing in the rate of price growth can be expected but in many areas inventory shortages will persist and home prices are likely to continue to rise above historic norms.” Following reports of rapid sales declines and price depreciation in August 2006, Lereah admitted that the expected “home prices to come down 5% nationally, more in some markets, less in others. And a few cities in Florida and California, where home prices soared to nose-bleed heights, could have ‘hard landings’.”
John A. Kilpatrick, of Greenfield Advisors, was cited by Bloomberg News on June 14, 2007, on the linkage between increased foreclosures and localized housing price declines: “Living in an area with multiple foreclosures can result in a 10 per cent to 20 per cent decrease in property values.” He went to say, “In some cases that can wipe out the equity of homeowners or leave them owing more on their mortgage than the house is worth. The innocent houses that just happen to be sitting next to those properties are going to take a hit.”
The U.S. Senate Banking Committee held hearings on the housing bubble and related loan practices in 2006, titled “The Housing Bubble and its implications for the Economy” and “Calculated Risk: Assessing Non-Traditional Mortgage Products”. Following the collapse of the subprime mortgage industry in March 2007, Senator Chris Dodd, the Chairman of the Banking Committee held hearings and asked executives from the top five subprime mortgage companies to testify and explain their lending practices. Dodd said that “predatory lending practices” had endangered home ownership for millions of people. In additional, Democratic senators such as Senator Charles Schumer of New York were already proposing a federal government bailout of subprime borrowers in order to save homeowners from losing their residences.
Causes
Observers and analysts have attributed the reasons for the 2001-2006 housing bubble and its 2007-10 collapse in the United Stages to “everyone from home buyers to Wall Street, mortgage brokers to Alan Greenspan”. Other factors that are named included “Mortgage underwriters, investment banks, rating agencies, and investors”, “low mortgage interest rates, low short-term interest rates, relaxed standards for mortgage loans, and irrational exuberance.” Politicians in both the Democratic and Republican parties have been cited for “pushing to keep derivatives unregulated” and “with rare exceptions” giving Fannie Mae and Freddie Mac “unwavering support”.
Extent
Home price appreciation has been non-uniform to such an extent that some economists, including former Fed Chairman Alan Greenspan, have argued that United States was not experiencing a nationwide housing bubble per se, but a number of local bubbles. However, in 2007 Greenspan admitted that there was in fact a bubble in the U.S. housing market, and that “all the froth bubbles add up to an aggregate bubble.”
Despite greatly relaxed lending standards and low interest rates, many regions of the country saw very little growth during the “bubble period”. Out of 20 largest metropolitan areas tracked by the S&P/Case-Shiller house price index, six (Dallas, Cleveland, Detroit, Denver, Atlanta, and Charlotte) saw less than 10% price growth in inflation-adjusted terms in 2001-2006. During the same period, seven metropolitan areas (Tampa, Miami, San Diego, Los Angeles, Las Vegas, Phoenix, and Washington, D.C.) appreciated by more than 80%.
Somewhat paradoxically, as the housing bubble deflates some metropolitan areas (such as Denver and Atlanta) have been experiencing high foreclosure rates, even though they did not see much house appreciation in the first place and therefore did not appear to be contributing to the national bubble. This was also true of some cities in the Rust Belt such as Detroit and Cleveland, were weak local economies had produced little house price appreciation early in the decade but still saw declining values and increased foreclosures in 2007. As of January 2009, California, Michigan, Ohio and Florida were the states with the highest foreclosure rates.
By July 2008, year-to-date prices had declined in 24 of U.S. metropolitan areas, with California and the southwest experiencing the greatest price falls. According to the reports, only Milwaukee had seen an increase in house prices after July 2007.
Side effects
Prior to the real estate market correction of 2006-2007, the unprecedented increase in house prices starting in 1997 produced numerous wide-ranging effects in the economy of the United States.
- One of the most direct effects was on the construction of new houses. In 2005, 1,283,000 new single-family homes were sold, compared with an average of 609,000 per year during 1990-1995. The largest home builders, such as D. R. Horton, Pulte, and Lennar, saw their largest share prices and revenues in 2004-2005. D. R. Horton’s stock went from $3 in early 1997 to all-time high of $42.82 on July 20, 2005. Pulte Corp’s revenues grew from $2.33 billion in 1996 to $14.69 billion in 2005.
- Mortgage equity withdrawals – primarily home equity loans and cash out refinancings – grew considerably since early 1990s. According to U.S. Federal Reserve estimates, in 2005 homeowners extracted $750 billion of equity from their homes (up from $106 billion in 1996), spending two-thirds of it on personal consumption, home improvements, and credit card debt.
- It is widely believed that the increased degree of economic activity produced by the expanding housing bubble in 2001-2003 was partly responsible for averting a full-scale recession in the U.S. economy following the dot-com bust.
- Rapidly growing house prices and increasing price gradients forced many residents to flee the expensive centers of many metropolitan areas, resulting in the explosive growth of exurbs in some regions.
- Extreme regional differences in land prices. The differences in housing prices are many due to differences in land values, which reached 85% of the total value of houses in the highest priced markets at the peak. High land values contribute to high living costs in general and are part of the reason for the decline of the old industrial centers while new automobile plants, for example, were built throughout the South, which grew in population faster than the other regions
The share prices of Fannie Mae and Freddie Mac plummeted in 2008 as investors worried that they lacked sufficient capital to cover the losses on their $5 trillion portfolio of loans and loan guarantees. On June 16, 2010 it was announced that Fannie Mae and Freddie Mac would be delisted from the New York Stock Exchange; shares now trade on over-the-counter market.
Housing market correction
Basing their statements on historic U.S. housing valuation trends, in 2005 and 2006 many economist and business writers predicted market corrections ranging from a few percentage points to 50% or more from peak values in some markets, and although this cooling had yet not affected all areas for the U.S., some warned that it still could, and that the correction would be “nasty” and “severe”. Chief economist Mark Zandi of the economic research firm Moody’s Economy.com predicted a “crash” of double-digit depreciation in some U.S. cities by 2007-209. In a paper he presented to a Federal Reserve Board economic symposium in August 2007, Yale University economist Robert Shiller warned, “The examples we have of past cycles indicate that major declines in real home prices-even 50 per cent declines in some places-are entirely possible going forward from today or form the not-too-distant-future.”
To better understand how the mortgage crisis played out, a 2012 report from the Universality of Michigan analyzed data from the Panel Study of Income Dynamics (PSID), which surveyed roughly 9,000 representative households in 2009 and 2011. The data seem to indicate that, while conditions are still difficult, in some ways the crisis is easing: Over the period studied , the percentage of families behind on mortgage payments fell from 2.2 to 1.9; homeowners who thought it was “very likely or somewhat likely” that they would fall behind on payments fell from 6% to 4.6% of families. On the other hand, family’s financial liquidity has decreased: “As of 2009, 18.5% of families had no liquid assets, and by 2011 this had grown to 23.4% families.”
Sources:
http://en.wikipedia.org/wiki/U.S._housing_bubble
Monday, September 16, 2013
subprimes
In finance, subprime lending (also referred to as near-prime, non-prime, and second-chance lending) means making loans to people who may have difficulty maintaining the repayment schedule, sometimes reflecting setbacks such as unemployment, divorce, medical emergencies, etc. These loans are characterized by higher interest rates, poor quality collateral, and less favorable terms in order to compensate for higher credit risk. Many subprime loans were packaged into mortgage backed securities (MBS) and ultimately defaulted, contributing to the financial crisis of 2007-2008.
Proponents of subprime lending maintain that the practice extends credit to people who would otherwise not have access to the credit market. Professor Harvey S. Rosen of Princeton University explained, "The main thing that innovations in the mortgage market have done over the past 30 years is to let in the excluded: the young, the discriminated-against, the people without a lot of money in the bank to use for a down payment."
The term subprime refers to the quality of particular borrowers, who have weakened credit histories and a greater risk of loan default than prime borrowers. As people become economically active, records are created relating to the borrowing, earning and lending history. This is called a credit rating, and although covered by privacy laws the information is readily available to people with a need to know (in some countries, loan applications specifically allow the lender to access such records). Subprime borrowers have credit ratings that might include:
Lenders' standards for determining risk categories may also consider the size of the proposed loan, and also take into account the way the loan and the repayment plan is structured, if it is a conventional repayment loan, a mortgage loan, an endowment mortgage, and interest only loan, a standard repayment loan, an amortized loan, a credit card limit or some other arrangement. The originator is also taken into consideration. Because of this, it was possible for a loan to a borrower with "prime" characteristics (e.g., high credit score, low debt) to be classified as a subprime.
Although there is no single, standard definition, in the United States subprime loans are usually classified as those where the borrower has a FICO score below 640. The term was popularized by the media during the subprime mortgage crises or "credit crunch" of 2007. Those loans that do not meet Fannie Mae or Freddie Mac underwriting guidelines for prime mortgages are called "non-conforming" loans. As such, they cannot be packaged into Fannie Mae or Freddie Mac MBS.
A borrower with an outstanding record of repayment on time and in full will get what is called an A-paper loan. Borrowers with less-than-perfect credit 'scores' might be rated as meriting an A-minus, B-paper, C-paper or D-paper loan, with interest payments progressively increased for less reliable payers to allow the company to 'share the risk' of default equitably among all its borrowers. Between A-paper and subprime risk is Alt-A. A-minus is related to Alt-A, with some lenders categorizing them the same, but A-minus is traditionally defined as loans lacking full documentation. The value of U.S. subprime mortgages was estimated at $1.3 trillion as of March 2007, with over 7.5 million first-lien subprime mortgages outstanding.
Sources:
http://en.wikipedia.org/wiki/Subprime_lending
Proponents of subprime lending maintain that the practice extends credit to people who would otherwise not have access to the credit market. Professor Harvey S. Rosen of Princeton University explained, "The main thing that innovations in the mortgage market have done over the past 30 years is to let in the excluded: the young, the discriminated-against, the people without a lot of money in the bank to use for a down payment."
The term subprime refers to the quality of particular borrowers, who have weakened credit histories and a greater risk of loan default than prime borrowers. As people become economically active, records are created relating to the borrowing, earning and lending history. This is called a credit rating, and although covered by privacy laws the information is readily available to people with a need to know (in some countries, loan applications specifically allow the lender to access such records). Subprime borrowers have credit ratings that might include:
- limited debt experience (so the lender's assessor simply does not know, and assumes the worst), or
- no possession of property assets that could be used as security (for the lender to sell in case of default)
- excessive debt (the known income of the individual or family is unlikely to be enough to pay living expenses + interest + repayment),
- a history of late or sometimes missed payments so that the loan period had to be extended,
- failures to pay debts completely (default debt), and
- any legal judgments such as "orders to pay" or bankruptcy.
Lenders' standards for determining risk categories may also consider the size of the proposed loan, and also take into account the way the loan and the repayment plan is structured, if it is a conventional repayment loan, a mortgage loan, an endowment mortgage, and interest only loan, a standard repayment loan, an amortized loan, a credit card limit or some other arrangement. The originator is also taken into consideration. Because of this, it was possible for a loan to a borrower with "prime" characteristics (e.g., high credit score, low debt) to be classified as a subprime.
Although there is no single, standard definition, in the United States subprime loans are usually classified as those where the borrower has a FICO score below 640. The term was popularized by the media during the subprime mortgage crises or "credit crunch" of 2007. Those loans that do not meet Fannie Mae or Freddie Mac underwriting guidelines for prime mortgages are called "non-conforming" loans. As such, they cannot be packaged into Fannie Mae or Freddie Mac MBS.
A borrower with an outstanding record of repayment on time and in full will get what is called an A-paper loan. Borrowers with less-than-perfect credit 'scores' might be rated as meriting an A-minus, B-paper, C-paper or D-paper loan, with interest payments progressively increased for less reliable payers to allow the company to 'share the risk' of default equitably among all its borrowers. Between A-paper and subprime risk is Alt-A. A-minus is related to Alt-A, with some lenders categorizing them the same, but A-minus is traditionally defined as loans lacking full documentation. The value of U.S. subprime mortgages was estimated at $1.3 trillion as of March 2007, with over 7.5 million first-lien subprime mortgages outstanding.
Sources:
http://en.wikipedia.org/wiki/Subprime_lending
Thursday, September 5, 2013
text encoding
A character encoding system consists of a code that pairs each character from a given repertoire with something else – such as a bit pattern, sequence of natural numbers, octets or electrical pulses – in order to facilitate the transmission of data (generally numbers or text) through telecommunication networks or for data storage. Other terms such as character set, character map, codeset, and code page are used almost interchangeably, but these terms have related but distinct meanings described below.
Early character codes associated with the optical or electrical telegraph could only represent a subset of the characters used in written language, sometimes restricted to upper case letters, numerals and some punctuation only. The low cost of digital representation of data in modern computer systems allows more elaborate character codes (such as Unicode) that represent more of the characters used in many written languages. Character encoding using internationally-accepted permits worldwide interchange of text in electronic form.
History
Common examples of character encoding systems include Morse code, the Baudot code, the American Standard Code for Information Interchange (ASCII) and Unicode.
Morse code was introduced in the 1840s and is used to encode each letter of the Latin alphabet, each Arabic numeral, and some other characters via a series of long and short presses of a telegraph key. Representations of characters encoded using Morse code varied in length.
The Baudot code, a 5-bit encoding, was created by Emile Baudot in 1870, patented in 1874, modified by Donald Murray in 1901, and standardized by CCITT as International Telegraph Alphabet No. 2 (ITA2) in 1930.
ASCII was introduced in 1963 and is a 7-bit encoding scheme used to encode letters, numerals, symbols, and device control codes as fixed-length codes using integers.
IBM's Extended Binary Coded Decimal Interchange Code (usually abbreviated EBCDIC) is an 8-bit encoding scheme developed in 1963.
The limitations of such sets soon became apparent, and a number of ad hoc methods were developed to extend them. The need to support more writing systems for different languages, including the CJK family of East Asian scripts, required support for a far larger number of characters and demanded a systematic approach to character encoding rather than the previous ad hoc approaches.
Code unit
The code unit is a unit used for character encoding.
Unicode encoding model
Unicode and its parallel standard, the ISO/IEC 10646 Universal Character Set, together constitute a modern, unified character encoding. Rather than mapping characters directly to octets (bytes), they separately define what characters are available, their numbering, how those numbers are encoded as a series of "code units" (limited-size numbers), and finally how those units are encoded as a stream of octets. The idea behind this decomposition is to establish a universal set of characters that can be encoded in a variety of ways. To describe this model correctly one needs more precise terms than "character set" and "character encoding." The terms used in the modern model follow:
A character repertoire is the full set of abstract characters that a system supports. The repertoire may be closed, i.e., no additions are allowed without creating a new standard (as is the case with ASCII and most of the ISO-8859 series), or it may be open, allowing additions (as is the case with Unicode and to a limited extent the Windows code pages). The characters in a given repertoire reflect decisions that have been made about how to divide writing systems into basic information units. The basic variants of the Latin, Greek, and Cyrillic alphabets, can be broken down into letters, digits, punctuation, and a few special characters like the space, which can all be arranged in simple linear sequences that are displayed in the same order they are read. Even with these alphabets, however, diacritics pose a complication: they can be regarded either as part of a single character containing a ltter and diacritic (known as a precomposed character), or as separate characters. The former allows a far simpler text handling system but the latter allows any letter/diacritic combination to be used in text. Ligatures pose similar problems. Other writing systems, such as Arabic and Hebrew, are represented with more complex character repertoires due to the need to accommodate things like bidirectional text and glyphs that are joined together in different ways for different situations.
A coded character set (CCS) specifies how to represent a repertoire of characters using a number of (typically non-negative) integer values called code points. For example, in a given repertoire, a character representing the capital letter "A" in the Latin alphabet might be assigned to the integer 65, the character for "B" to 66, and so on. A complete set of characters and corresponding integers is a coded character set. Multiple coded character sets may share the same repertoire; for example ISO/IEC 8859-1 and IBM code pages 037 and 500 all cover the same repertoire but map them to different codes. In a coded character set, each code point only represents one character, i.e., a coded character set is a function.
A character encoding form (CEF) specifies the convention of a coded character set's integer codes into a set of limited-size integer code values that facilitate storage in a system that represents numbers in binary form using a fixed number of bits (i.e., practically any computer system). For example, a system that stores numeric information in 16-bit units would only be able to directly represent integers from 0 to 65,535 in each unit, but larger integers could be represented if more than one 16-bit unit could be used. This is what CEF accommodates: it defines a way of mapping a single code point from a range of, say, 0 to 1.4 million, to a series of one or more code values from a range of, say, 0 to 65,535.
The simplest CEF system is simply to choose large enough units that the values from the coded character set can be encoded directly (one code point to one code value). This works well for coded character sets that fit in 8 bits (as most legacy non-CJK encodings do) and reasonably well for coded character sets that fit in 16 bits (such as early versions of Unicode). However, as the size of the coded character set increases (e.g., modern Unicode requires at least 21 bits/character), this becomes less and less efficient, and it is difficult to adapt existing systems to use larger code values. Therefore, most systems working with later versions of Unicode use either UTF-8, which maps Unicode code points to variable-length sequences of octets, or UTF-16, which maps Unicode code points to variable-length sequences of 16-bit words.
Next, a character encoding scheme (CES) specifies how the fixed-size integer code values should be mapped into an octet sequence suitable for saving on an octet-based file system or transmitting over an octet-based network. With Unicode, a simple character encoding scheme is used in most cases, simply specifying whether the bytes for each integer should be in big-endian or little-endian order (even this isn't needed with UTF-8). However, there are also compound character encoding schemes, which use escape sequences to switch between several simple schemes (such as ISO/IEC 2022), and compressing schemes, which try to minimize the number of bytes used per code unit (such as SCSU, BOCU, and Punycode). See comparison of Unicode encodings for a detail discussion.
Finally there may be a higher level protocol which supplies additional information that can be used to select the particular variant of a Unicode character, particularly where there are regional variants that have been 'unified' in Unicode as the same character. An example is the XML attribute xml:lang.
The Unicode model reserves the term character map for historical systems that directly assign a sequence of characters to a sequence of bytes, covering all of CCS, CEF and CES layers.
Character sets, code pages, and character maps
In computer science, the terms character encoding, character map, character set or code page were historically synonymous, as the same standard would specify a repertoire of characters and how they were to be encoded into a stream of code units – usually with a single character per code unit. The terms now have related but distinct meanings, reflecting the efforts of standards bodies to use precise terminology when writing about and unifying many different encoding systems. Regardless, the terms are still used interchangeably, with character set being nearly ubiquitous.
A code page usually means a byte-oriented encoding, but with regard to some suite of encodings (covering different scripts), where many characters share the same codes in most of all those pages. Well known code page suits are "Windows" (based on Windows-1252) and "IBM"/"DOS" (based on code page 437). Most, but not all, encodings referred to as code pages are single-byte encodings.
IBM's Character Data Representation Architecture (CDRA) designates with coded character set identifiers (CCSIDs) and each of which is variously called a charset, character set, code page, or CHARMAP.
The term code page does not occur in Unix or Linux where charmap is preferred, usually in the larger context of locales.
Contrasted to CCS above, a character encoding is a map from abstract characters to code words. A character set in HTTP (and MIME) parlance is the same as a character encoding (but not the same as CCS).
Sources:
http://en.wikipedia.org/wiki/Character_encoding
Early character codes associated with the optical or electrical telegraph could only represent a subset of the characters used in written language, sometimes restricted to upper case letters, numerals and some punctuation only. The low cost of digital representation of data in modern computer systems allows more elaborate character codes (such as Unicode) that represent more of the characters used in many written languages. Character encoding using internationally-accepted permits worldwide interchange of text in electronic form.
History
Common examples of character encoding systems include Morse code, the Baudot code, the American Standard Code for Information Interchange (ASCII) and Unicode.
Morse code was introduced in the 1840s and is used to encode each letter of the Latin alphabet, each Arabic numeral, and some other characters via a series of long and short presses of a telegraph key. Representations of characters encoded using Morse code varied in length.
The Baudot code, a 5-bit encoding, was created by Emile Baudot in 1870, patented in 1874, modified by Donald Murray in 1901, and standardized by CCITT as International Telegraph Alphabet No. 2 (ITA2) in 1930.
ASCII was introduced in 1963 and is a 7-bit encoding scheme used to encode letters, numerals, symbols, and device control codes as fixed-length codes using integers.
IBM's Extended Binary Coded Decimal Interchange Code (usually abbreviated EBCDIC) is an 8-bit encoding scheme developed in 1963.
The limitations of such sets soon became apparent, and a number of ad hoc methods were developed to extend them. The need to support more writing systems for different languages, including the CJK family of East Asian scripts, required support for a far larger number of characters and demanded a systematic approach to character encoding rather than the previous ad hoc approaches.
Code unit
The code unit is a unit used for character encoding.
- With US-ASCII, code unit is 7 bits.
- With UTF-8, code unit is 8 bits.
- With EBCDIC, code unit is 8 bits.
- With UTF-16, code unit is 16 bits.
- With UTF-3, code unit is 32 bits.
Unicode encoding model
Unicode and its parallel standard, the ISO/IEC 10646 Universal Character Set, together constitute a modern, unified character encoding. Rather than mapping characters directly to octets (bytes), they separately define what characters are available, their numbering, how those numbers are encoded as a series of "code units" (limited-size numbers), and finally how those units are encoded as a stream of octets. The idea behind this decomposition is to establish a universal set of characters that can be encoded in a variety of ways. To describe this model correctly one needs more precise terms than "character set" and "character encoding." The terms used in the modern model follow:
A character repertoire is the full set of abstract characters that a system supports. The repertoire may be closed, i.e., no additions are allowed without creating a new standard (as is the case with ASCII and most of the ISO-8859 series), or it may be open, allowing additions (as is the case with Unicode and to a limited extent the Windows code pages). The characters in a given repertoire reflect decisions that have been made about how to divide writing systems into basic information units. The basic variants of the Latin, Greek, and Cyrillic alphabets, can be broken down into letters, digits, punctuation, and a few special characters like the space, which can all be arranged in simple linear sequences that are displayed in the same order they are read. Even with these alphabets, however, diacritics pose a complication: they can be regarded either as part of a single character containing a ltter and diacritic (known as a precomposed character), or as separate characters. The former allows a far simpler text handling system but the latter allows any letter/diacritic combination to be used in text. Ligatures pose similar problems. Other writing systems, such as Arabic and Hebrew, are represented with more complex character repertoires due to the need to accommodate things like bidirectional text and glyphs that are joined together in different ways for different situations.
A coded character set (CCS) specifies how to represent a repertoire of characters using a number of (typically non-negative) integer values called code points. For example, in a given repertoire, a character representing the capital letter "A" in the Latin alphabet might be assigned to the integer 65, the character for "B" to 66, and so on. A complete set of characters and corresponding integers is a coded character set. Multiple coded character sets may share the same repertoire; for example ISO/IEC 8859-1 and IBM code pages 037 and 500 all cover the same repertoire but map them to different codes. In a coded character set, each code point only represents one character, i.e., a coded character set is a function.
A character encoding form (CEF) specifies the convention of a coded character set's integer codes into a set of limited-size integer code values that facilitate storage in a system that represents numbers in binary form using a fixed number of bits (i.e., practically any computer system). For example, a system that stores numeric information in 16-bit units would only be able to directly represent integers from 0 to 65,535 in each unit, but larger integers could be represented if more than one 16-bit unit could be used. This is what CEF accommodates: it defines a way of mapping a single code point from a range of, say, 0 to 1.4 million, to a series of one or more code values from a range of, say, 0 to 65,535.
The simplest CEF system is simply to choose large enough units that the values from the coded character set can be encoded directly (one code point to one code value). This works well for coded character sets that fit in 8 bits (as most legacy non-CJK encodings do) and reasonably well for coded character sets that fit in 16 bits (such as early versions of Unicode). However, as the size of the coded character set increases (e.g., modern Unicode requires at least 21 bits/character), this becomes less and less efficient, and it is difficult to adapt existing systems to use larger code values. Therefore, most systems working with later versions of Unicode use either UTF-8, which maps Unicode code points to variable-length sequences of octets, or UTF-16, which maps Unicode code points to variable-length sequences of 16-bit words.
Next, a character encoding scheme (CES) specifies how the fixed-size integer code values should be mapped into an octet sequence suitable for saving on an octet-based file system or transmitting over an octet-based network. With Unicode, a simple character encoding scheme is used in most cases, simply specifying whether the bytes for each integer should be in big-endian or little-endian order (even this isn't needed with UTF-8). However, there are also compound character encoding schemes, which use escape sequences to switch between several simple schemes (such as ISO/IEC 2022), and compressing schemes, which try to minimize the number of bytes used per code unit (such as SCSU, BOCU, and Punycode). See comparison of Unicode encodings for a detail discussion.
Finally there may be a higher level protocol which supplies additional information that can be used to select the particular variant of a Unicode character, particularly where there are regional variants that have been 'unified' in Unicode as the same character. An example is the XML attribute xml:lang.
The Unicode model reserves the term character map for historical systems that directly assign a sequence of characters to a sequence of bytes, covering all of CCS, CEF and CES layers.
Character sets, code pages, and character maps
In computer science, the terms character encoding, character map, character set or code page were historically synonymous, as the same standard would specify a repertoire of characters and how they were to be encoded into a stream of code units – usually with a single character per code unit. The terms now have related but distinct meanings, reflecting the efforts of standards bodies to use precise terminology when writing about and unifying many different encoding systems. Regardless, the terms are still used interchangeably, with character set being nearly ubiquitous.
A code page usually means a byte-oriented encoding, but with regard to some suite of encodings (covering different scripts), where many characters share the same codes in most of all those pages. Well known code page suits are "Windows" (based on Windows-1252) and "IBM"/"DOS" (based on code page 437). Most, but not all, encodings referred to as code pages are single-byte encodings.
IBM's Character Data Representation Architecture (CDRA) designates with coded character set identifiers (CCSIDs) and each of which is variously called a charset, character set, code page, or CHARMAP.
The term code page does not occur in Unix or Linux where charmap is preferred, usually in the larger context of locales.
Contrasted to CCS above, a character encoding is a map from abstract characters to code words. A character set in HTTP (and MIME) parlance is the same as a character encoding (but not the same as CCS).
Sources:
http://en.wikipedia.org/wiki/Character_encoding
Monday, September 2, 2013
equator
An equator is the intersection of a sphere's surface with the plane perpendicular to the sphere's axis of rotation and midway between the poles. The Equator usually refers to the Earth's equator; an imaginary line on the Earth's surface equidistant from the North Pole and South Pole, dividing the Earth into the Northern Hemisphere and Southern Hemisphere. Other planets and astronomical bodies have equators similarly defined. The Equator is about 40,075 kilometers (24,901 mi) long; 78.7% is across water and 21.3% is over land.
The latitude of the Equator is by definition 0° (zero degrees). The Equator is one of the five notable circles of latitude on Earth, with the others being the two Polar Circles (the Arctic Circle and the Antarctic Circle) and the two Tropical Circles (The Tropic of Cancer and the Tropic of Capricorn). The Equator is the only line of latitude that is also a great circle. The imaginary circle obtained when the Earth's equator is projected onto the sky is called the celestial equator.
In its seasonal apparent movement across the sky the sun passes over the Equator twice each year, at the March and September equinoxes. At the moment of the equinox, light rays from the center of the sun are perpendicular to the surface of the earth at the point on the equator experiencing solar noon.
The Equator, like the Tropics, is not fixed. the true equatorial plane is always perpendicular to the Earth's spin axis; this axis is fairly stable but its position drifts about 15 meters (49 feet) during a year and the equator shifts likewise.
Equatorial seasons and climate
Seasons result from the yearly revolution of the Earth around the Sun and the tilt of the Earth's axis relative to the plane of revolution. During the year the northern and southern hemispheres are inclined toward or away from the sun according to Earth's position in its orbit. The hemisphere inclined toward the sun receives more sunlight and is in summer, while the other hemisphere receives less sun and is in winter (see solstice). At the equinox the Earth's axis is not tilted toward the sun and the day is about 12 hours long over most of the Earth.
The Equator lies mostly on the three largest oceans: the Pacific Ocean, the Atlantic Ocean, and the Indian Ocean. The highest point on the Equator is at the elevation of 4,690 meters (15,387 feet), found on the slopes of Volcán Cayambe [summit 5,790 meters (18,996 feet)] in Ecuador. This is slightly above the snow line, and is the only place on the Equator where snow lies on the ground.
Lowlands around the Equator generally have a tropical rainforest climate, also known as an equatorial climate, through cold currents cause some regions to have tropical monsoon climates with a dry season in the middle of the year. Usually, average annual temperature is around 30 °C (86 °F) during the day and 23 °C (73 °F) at night. Rainfall is very high, usually from 2,500 to 3,500 mm per year. Average rainy days are around 200 per year and average annual sunshine hours around 2000.
Equatorial countries and territories
The Equator traverses the land and/or territorial waters of 14 countries. Starting at the Prime Meridian and heading eastwards, the Equator passes through:
Despite its name, no part of Equatorial Guinea's territory lies on the Equator. However, its island of Annobón is 155 kilometers (100mi) south of the Equator, and the rest of the country lies to the north.
Latitude
Latitude (φ) is a geographic coordinate that specifies the north-south position of a point on the Earth's surface. Latitude is an angle (defined below) which ranges from 0° at the Equator to 90° (North or South) at the poles. Lines of constant latitude, or parallels, run east–west as circles parallel to the equator. Latitude is used together with longitude to specify the precise location of features on the surface of the Earth.
The graticule, the mesh formed by the lines of constant latitude and constant longitude, is constructed by reference to the rotation axis of the Earth. The primary reference points are the poles where the axis of rotation of the Earth intersects the reference surface. Planes which contain the rotation axis intersect the surface in the meridians and the angle between any one meridian plane and that through Greenwich (the Prime Meridian) defines the longitude: meridians are lines of constant longitude. The plane through the centre of the Earth and orthogonal to the rotation axis intersects the surface in a great circle called the equator. Planes parallel to the equatorial plane intersect the surface in circles of constant latitude; these are the parallels. The equator has a latitude of 0°, the North pole has a latitude of 90° north (written 90° N or +90°), and the South pole has a latitude of 90° south (written 90° S or −90°). The latitude of an arbitrary point is the angle between the equatorial plane and the radius to that point.
Longitude
Longitude is a geographic coordinate that specifies the east-west position of a point on the Earth's surface. It is an angular measurement, usually expressed in degrees and denoted by the Greek letter lambda (λ). Points with the same longitude lie in lines running from the North Pole to the South Pole. By convention, one of these, the Prime Meridian, which passes through the Royal Observatory, Greenwich, England, was intended to establish the position of zero degrees longitude. The longitude of other places was to be measured as the angle east or west from the Prime Meridian, ranging from 0° at the Prime Meridian to +180° eastward and −180° westward. Specifically, it is the angle between a plane containing the Prime Meridian and a plane containing the North Pole, South Pole and the location in question.
Circles of latitude
A circle of latitude on the Earth is an imaginary east-west circle connecting all locations (not taking into account elevation) having a given latitude. A location's position along a circle of latitude is given by its longitude.
Circles of latitude are often called parallels because they are parallel to each other – that is, any two parallels are everywhere the same distance apart. (Since the Earth is not spherical the distance from the equator to 10 degrees north is slightly less than the distance from 10 to 20 degrees north.)
Circles of latitude become smaller the farther they are from the equator and the closer they are to the poles. A circle of latitude is perpendicular to all meridians, and is hence a special case of a loxodrome.
The latitude of the circle is (roughly) the angle between the Equator and the circle, with the angle's vertex at the Earth's centre. The Equator is at 0°, and the North and South Pole are at 90° north and 90° south respectively. There are 89 integral (whole degree) circles of latitude between the Equator and the Poles in each hemisphere, but these can be divided into more precise measurements of latitude, and are often represented as a decimal degree (e.g. 34.637°N) or with minutes and seconds (e.g. 22°14'26"S). There is no limit to how precisely latitude can be measured, and so there are an infinite number of circles of latitude on Earth.
Great circle
A great circle, also known as an orthodrome or Riemannian circle, of a sphere is the intersection of the sphere and a plane which passes through the center point of the sphere. (A small circle is the intersection of the sphere and a plane which does not pass through the center.) Any diameter of any great circle coincides with a diameter of the sphere, and therefore all great circles have the same circumference as each other, and have the same center as the sphere. A great circle is the largest circle that can be drawn on any given sphere.
Solstice
A solstice is an astronomical event that occurs twice each year as the Sun reaches its highest or lowest excursion relative to the celestial equator on the celestial sphere. As a result, on the day of the solstice, the Sun appears to have reached its highest or lowest annual altitude in the sky above the horizon at local solar noon. The word solstice is derived from the Latin sol (sun) and sistere (to stand still), because at the solstices, the Sun stands still in declination; that is, the seasonal movement of the Sun's path (as seen from Earth) comes to a stop before reversing direction. The solstices, together with the equinoxes, are connected with the seasons. In many cultures the solstices mark either the beginning or the midpoint of winter and summer.
The term solstice can also be used in a broader sense, as the date (day) when this occurs. The day of the solstice is either the longest day of the year (in summer) or the shortest day of the year (in winter) for any place outside of the tropics.
Equinox
An equinox occurs twice a year (around 20 March and 22 September), when the plane of the Earth's equator passes the center of the Sun. At this time the tilt of the Earth's axis is inclined neither away from nor towards the Sun. The term equinox can also be used in a broader sense, meaning the date when such a passage happens. The name "equinox" is derived from the Latin aequus (equal) and nox (night), because around the equinox, night and day are about equal length. Times of sunset and sunrise vary with an observer's location (longitude and latitude), so these dates likewise depend on location and do not exist for locations close to the Equator. To avoid this ambiguity the term equilux is sometimes used in this sense.
During an equinox, the Earth is not tilted toward or away from the Sun and the length of the day is the same at all points on the Earth's surface.
Sources:
http://en.wikipedia.org/wiki/Equator
http://en.wikipedia.org/wiki/Latitude
http://en.wikipedia.org/wiki/Longitude
http://en.wikipedia.org/wiki/Circle_of_latitude
http://en.wikipedia.org/wiki/Great_circle
http://en.wikipedia.org/wiki/Solstice
http://en.wikipedia.org/wiki/Equinox
The latitude of the Equator is by definition 0° (zero degrees). The Equator is one of the five notable circles of latitude on Earth, with the others being the two Polar Circles (the Arctic Circle and the Antarctic Circle) and the two Tropical Circles (The Tropic of Cancer and the Tropic of Capricorn). The Equator is the only line of latitude that is also a great circle. The imaginary circle obtained when the Earth's equator is projected onto the sky is called the celestial equator.
In its seasonal apparent movement across the sky the sun passes over the Equator twice each year, at the March and September equinoxes. At the moment of the equinox, light rays from the center of the sun are perpendicular to the surface of the earth at the point on the equator experiencing solar noon.
The Equator, like the Tropics, is not fixed. the true equatorial plane is always perpendicular to the Earth's spin axis; this axis is fairly stable but its position drifts about 15 meters (49 feet) during a year and the equator shifts likewise.
Equatorial seasons and climate
Seasons result from the yearly revolution of the Earth around the Sun and the tilt of the Earth's axis relative to the plane of revolution. During the year the northern and southern hemispheres are inclined toward or away from the sun according to Earth's position in its orbit. The hemisphere inclined toward the sun receives more sunlight and is in summer, while the other hemisphere receives less sun and is in winter (see solstice). At the equinox the Earth's axis is not tilted toward the sun and the day is about 12 hours long over most of the Earth.
The Equator lies mostly on the three largest oceans: the Pacific Ocean, the Atlantic Ocean, and the Indian Ocean. The highest point on the Equator is at the elevation of 4,690 meters (15,387 feet), found on the slopes of Volcán Cayambe [summit 5,790 meters (18,996 feet)] in Ecuador. This is slightly above the snow line, and is the only place on the Equator where snow lies on the ground.
Lowlands around the Equator generally have a tropical rainforest climate, also known as an equatorial climate, through cold currents cause some regions to have tropical monsoon climates with a dry season in the middle of the year. Usually, average annual temperature is around 30 °C (86 °F) during the day and 23 °C (73 °F) at night. Rainfall is very high, usually from 2,500 to 3,500 mm per year. Average rainy days are around 200 per year and average annual sunshine hours around 2000.
Equatorial countries and territories
The Equator traverses the land and/or territorial waters of 14 countries. Starting at the Prime Meridian and heading eastwards, the Equator passes through:
Despite its name, no part of Equatorial Guinea's territory lies on the Equator. However, its island of Annobón is 155 kilometers (100mi) south of the Equator, and the rest of the country lies to the north.
Latitude
Latitude (φ) is a geographic coordinate that specifies the north-south position of a point on the Earth's surface. Latitude is an angle (defined below) which ranges from 0° at the Equator to 90° (North or South) at the poles. Lines of constant latitude, or parallels, run east–west as circles parallel to the equator. Latitude is used together with longitude to specify the precise location of features on the surface of the Earth.
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| A graticule on a sphere or an ellipsoid. The lines from pole to pole are lines of constant longitude, or meridians. The circles parallel to the equator are lines of constant latitude, or parallels. The graticule determines the latitude and longitude of position on the surface. |
The graticule, the mesh formed by the lines of constant latitude and constant longitude, is constructed by reference to the rotation axis of the Earth. The primary reference points are the poles where the axis of rotation of the Earth intersects the reference surface. Planes which contain the rotation axis intersect the surface in the meridians and the angle between any one meridian plane and that through Greenwich (the Prime Meridian) defines the longitude: meridians are lines of constant longitude. The plane through the centre of the Earth and orthogonal to the rotation axis intersects the surface in a great circle called the equator. Planes parallel to the equatorial plane intersect the surface in circles of constant latitude; these are the parallels. The equator has a latitude of 0°, the North pole has a latitude of 90° north (written 90° N or +90°), and the South pole has a latitude of 90° south (written 90° S or −90°). The latitude of an arbitrary point is the angle between the equatorial plane and the radius to that point.
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| A perspective view of the Earth showing how latitude (φ) and longitude (λ) are defined on a spherical model. The graticule spacing is 10 degrees. |
Longitude
Longitude is a geographic coordinate that specifies the east-west position of a point on the Earth's surface. It is an angular measurement, usually expressed in degrees and denoted by the Greek letter lambda (λ). Points with the same longitude lie in lines running from the North Pole to the South Pole. By convention, one of these, the Prime Meridian, which passes through the Royal Observatory, Greenwich, England, was intended to establish the position of zero degrees longitude. The longitude of other places was to be measured as the angle east or west from the Prime Meridian, ranging from 0° at the Prime Meridian to +180° eastward and −180° westward. Specifically, it is the angle between a plane containing the Prime Meridian and a plane containing the North Pole, South Pole and the location in question.
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| Drawing of Earth with Longitudes |
Circles of latitude
A circle of latitude on the Earth is an imaginary east-west circle connecting all locations (not taking into account elevation) having a given latitude. A location's position along a circle of latitude is given by its longitude.
Circles of latitude are often called parallels because they are parallel to each other – that is, any two parallels are everywhere the same distance apart. (Since the Earth is not spherical the distance from the equator to 10 degrees north is slightly less than the distance from 10 to 20 degrees north.)
Circles of latitude become smaller the farther they are from the equator and the closer they are to the poles. A circle of latitude is perpendicular to all meridians, and is hence a special case of a loxodrome.
The latitude of the circle is (roughly) the angle between the Equator and the circle, with the angle's vertex at the Earth's centre. The Equator is at 0°, and the North and South Pole are at 90° north and 90° south respectively. There are 89 integral (whole degree) circles of latitude between the Equator and the Poles in each hemisphere, but these can be divided into more precise measurements of latitude, and are often represented as a decimal degree (e.g. 34.637°N) or with minutes and seconds (e.g. 22°14'26"S). There is no limit to how precisely latitude can be measured, and so there are an infinite number of circles of latitude on Earth.
Great circle
A great circle, also known as an orthodrome or Riemannian circle, of a sphere is the intersection of the sphere and a plane which passes through the center point of the sphere. (A small circle is the intersection of the sphere and a plane which does not pass through the center.) Any diameter of any great circle coincides with a diameter of the sphere, and therefore all great circles have the same circumference as each other, and have the same center as the sphere. A great circle is the largest circle that can be drawn on any given sphere.
Solstice
A solstice is an astronomical event that occurs twice each year as the Sun reaches its highest or lowest excursion relative to the celestial equator on the celestial sphere. As a result, on the day of the solstice, the Sun appears to have reached its highest or lowest annual altitude in the sky above the horizon at local solar noon. The word solstice is derived from the Latin sol (sun) and sistere (to stand still), because at the solstices, the Sun stands still in declination; that is, the seasonal movement of the Sun's path (as seen from Earth) comes to a stop before reversing direction. The solstices, together with the equinoxes, are connected with the seasons. In many cultures the solstices mark either the beginning or the midpoint of winter and summer.
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Illumination of Earth by Sun at the northern solstice.
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| Illumination of Earth by Sun at the southern solstice. |
The term solstice can also be used in a broader sense, as the date (day) when this occurs. The day of the solstice is either the longest day of the year (in summer) or the shortest day of the year (in winter) for any place outside of the tropics.
Equinox
An equinox occurs twice a year (around 20 March and 22 September), when the plane of the Earth's equator passes the center of the Sun. At this time the tilt of the Earth's axis is inclined neither away from nor towards the Sun. The term equinox can also be used in a broader sense, meaning the date when such a passage happens. The name "equinox" is derived from the Latin aequus (equal) and nox (night), because around the equinox, night and day are about equal length. Times of sunset and sunrise vary with an observer's location (longitude and latitude), so these dates likewise depend on location and do not exist for locations close to the Equator. To avoid this ambiguity the term equilux is sometimes used in this sense.
 |
| During an equinox, the Earth is not tilted toward or away from the Sun and the length of the day is the same at all points on the Earth's surface. |
During an equinox, the Earth is not tilted toward or away from the Sun and the length of the day is the same at all points on the Earth's surface.
Sources:
http://en.wikipedia.org/wiki/Equator
http://en.wikipedia.org/wiki/Latitude
http://en.wikipedia.org/wiki/Longitude
http://en.wikipedia.org/wiki/Circle_of_latitude
http://en.wikipedia.org/wiki/Great_circle
http://en.wikipedia.org/wiki/Solstice
http://en.wikipedia.org/wiki/Equinox
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