Revisiting 2008 Financial Crisis

Alb. Gov't L. Rev., 2009

2009

SSRN Electronic Journal, 2008

SSRN Electronic Journal, 2013

This review of the literature on the 2007-2009 crisis discusses the precrisis conditions, the crisis triggers, the crisis events, the real effects, and the policy responses to the crisis. The precrisis conditions contributed to the housing price bubble and the subsequent price decline that led to a counterparty-risk crisis in which liquidity shrank due to insolvency concerns. The policy responses were influenced both by the initial belief that it was a market-wide liquidity crunch and the subsequent learning that insolvency risk was a major driver. I suggest directions for future research and possible regulatory changes. (JEL G20, G21, E58, G28) In its analysis of the crisis, my testimony before the Financial Crisis Inquiry Commission drew the distinction between triggers and vulnerabilities. The triggers of the crisis were the particular events or factors that touched off the events of 2007-2009-the proximate causes, if you will. Developments in the market for subprime mortgages were a prominent example of a trigger of the crisis. In contrast, the vulnerabilities were the structural, and more fundamental, weaknesses in the financial system and in regulation and supervision that served to propagate and amplify the initial shocks.

Review of Corporate Finance Studies, 2015

This review of the literature on the 2007-2009 crisis discusses the precrisis conditions, the crisis triggers, the crisis events, the real effects, and the policy responses to the crisis. The precrisis conditions contributed to the housing price bubble and the subsequent price decline that led to a counterparty-risk crisis in which liquidity shrank due to insolvency concerns. The policy responses were influenced both by the initial belief that it was a market-wide liquidity crunch and the subsequent learning that insolvency risk was a major driver. I suggest directions for future research and possible regulatory changes. (JEL G20, G21, E58, G28) In its analysis of the crisis, my testimony before the Financial Crisis Inquiry Commission drew the distinction between triggers and vulnerabilities. The triggers of the crisis were the particular events or factors that touched off the events of 2007-2009-the proximate causes, if you will. Developments in the market for subprime mortgages were a prominent example of a trigger of the crisis. In contrast, the vulnerabilities were the structural, and more fundamental, weaknesses in the financial system and in regulation and supervision that served to propagate and amplify the initial shocks.

The Journal of Derivatives, 2008

The financial crisis of 2007-2009, also called the subprime mortgage crisis, originated in the United States as a result of the collapse of the U.S. housing market. It threatened to destroy the international financial system, which caused the failure (or near-failure) of several major investment and commercial banks, mortgage lenders, insurance companies, and savings and loan associations. It also creates the Great Recession (2007-2009), the worst economic downturn since the Great Depression (1929-1939) (Duignan, 2020). The origin of the financial crisis began with low-interest rates and weak lending standards during years that make a housing price bubble in the U.S. and elsewhere. It was caused by the bursting of the bubble, scandals of accounting corporate, and the September 11 terrorist attacks, the Federal Reserve decided to decrease the federal funds rate from 6.5% in May 2001 to 1% in June 2003. The goal was to encourage the economy. The availability of money to businesses and consumers at bargain rates can boost the economy. The result was an increase in home prices as borrowers took advantage of the low mortgage rates. Even subprime borrowers, those with poor or no credit history, could able to get a dream house. Figure 1 shows the history of house prices from 1976 to 1997 changed slightly. Suddenly, beginning in 1997, things altered radically. The banks then sold the loans to Wall Street banks, which packaged them into lowrisk financial instruments such as mortgage-backed securities. Soon a big secondary market for originating and distributing subprime loans developed (Singh, 2021).

Nw. UL Rev. Colloquy, 2010

The IUP Journal of Applied Economics, 2009

The present world economy has, increasingly, been interconnected in terms of small units such as industries, regions and national economies as discontinuous systems. Changes in these systems have varied impact across the world economies. This paper tries to trace out various triggers, trails and travails of the present crisis, with a view to suggest solutions or treatments for the global financial crisis of 2008-09. For instance, one of the triggers identified is the prolonged implementation of low interest rate policy. This, coupled with the savings glut in the world economy has led to sub-prime lending in the US, as it was used to finance the US mortgage debts. The author indicates that some new lessons have been learnt from the current financial crisis, the most important of them being the need for retooling the finance and economics models. Further, globalization, along with its bestowed benefits, brings in increased frequency and spread of financial and economic crises.