Abstract
The first three chapters have been devoted to understanding how the financial crisis developed. It has been argued that the house price bubble and the credit bubble that supported it created massive amounts of wildly overvalued mortgage-related assets and derivatives. While many of these assets and derivates were spread throughout the international financial system, large quantities were concentrated in the hands of several important and highly leveraged financial institutions. When the house price bubble collapsed, these assets lost much of their value and several key firms were made insolvent. Because information about the extent of the losses and their location was and remains limited, there was a general loss of confidence in and between financial institutions. For those firms unable to disguise or weather their losses, debt-holder runs followed quickly, forcing bankruptcy or government rescue.
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Notes
R. Shiller (2005). Irrational Exuberance, second edition. Princeton: Princeton University Press, 18–20.
See C. Kindleberger and R. Aliber (2005), Manias Panics and Crashes, A History of Financial Crises, Hoboken: John Wiley & Sons, Inc.
K. Jones and T. Critchfield (2005), Consolidation in the U.S. Banking Industry: Is the “Long, Strange Trip” About to End? FDIC Banking Review, Volume 17, Number 4, 31–61.
See Frederick Mishkin (2006), How Big a Problem Is Too Big to Fail? Journal of Economic Literature, Volume 44, Number 4, December, 988–1004.
G. Benston and G. Kaufman (1998). Deposit insurance reform in the FDIC Improvement Act: The experience to date. Federal Reserve Bank of Chicago Economic Perspectives, Volume 22, Number 2, 2–20.
G. Stern and R. Feldman (2004). Too Big to Fail, The Hazards of Bank Bailouts, Washington, DC: Brookings Institution Press, 30–32.
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© 2010 Marc Jarsulic
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Jarsulic, M. (2010). Who Caused This Disaster?. In: Anatomy of a Financial Crisis. Palgrave Macmillan, New York. https://doi.org/10.1057/9780230106185_4
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DOI: https://doi.org/10.1057/9780230106185_4
Publisher Name: Palgrave Macmillan, New York
Print ISBN: 978-1-137-03262-1
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