On the heels of earlier problems in Thailand, Indonesia, and other Asian countries, Russia’s default in August of last year caused investors worldwide to reassess risks and their views about conditions in emerging markets. A so-called “flight to quality” ensued, leaving still more turmoil in its wake.
Defaults and foreclosure activity increased dramatically, as easy initial terms expired. Home prices failed to go up as originally anticipated, and ARM interest rates reset higher. Foreclosures accelerated in the United States in late 2006 and triggered a global financial crisis through 2007 and 2008. II.