Assoc. Prof. Suzana Laporšek hosted Prof. Dr. Peter F. Orazem on Wednesday, November 27, 2024, as part of the Fulbright Specialist Program at the University of Primorska Faculty of Management. Prof. Orazem delivered a lecture for the course Financial Markets, Institutions and Instruments for third-year students in the UN Management program, taught in English.
Lecture Summary
Professor Dr. Orazem, who is visiting UP FM as part of the Fulbright Specialist Program, first introduced students to the opportunities offered by the Fulbright Specialist Program and explained how to apply for it. The lecture was divided into two main parts.
In the first part, Professor Orazem discussed the connection between human capital and wealth, drawing on empirical findings from both the United States and Slovenia. He emphasized that human capital is the most important asset for most households, while real estate accounts for the largest portion of physical assets for households. Human capital plays an especially crucial role during economic fluctuations, as it helps households better navigate economic shocks compared to those who rely solely on physical assets or financial investments, thereby contributing to a reduction in inequality.
In the second part of the lecture, Professor Orazem addressed mortgage-backed securities and their role in the 2008 financial crisis. With the decline in real estate prices in 2008, which in some U.S. states exceeded 30%, the value of the debt for 23% (data from 2010) of households with mortgage loans surpassed the value of the property secured by the mortgage. The drop in real estate prices and the rising number of mortgage defaults severely impacted the mortgage-backed securities market, causing their value to plummet. As a result, the mortgage-backed securities market became a source of systemic risk for the entire financial system. Professor Orazem also demonstrated how the crisis spread to the global market due to the significant presence of mortgage-backed securities in foreign investors’ portfolios. The lecture concluded with a discussion on the importance of stable housing prices and diversification of mortgage portfolios to prevent similar crises in the future.
