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The financial crisis of 2008 in fixed-income markets

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Author Info

  • Dwyer, Gerald P.
  • Tkac, Paula

Abstract

We explore how a relatively small amount of heterogeneous securities created turmoil in financial markets in much of the world in 2007 and 2008. The drivers of the financial turmoil and the Financial Crisis of 2008 were heterogeneous securities that were hard to value. These securities created concerns about counterparty risk and ultimately created substantial uncertainty. The problems spread in ways that were hard to see in advance. The run on prime money market funds in September 2008 and the effects on commercial paper were an important aspect of the crisis itself and are discussed in some detail.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of International Money and Finance.

Volume (Year): 28 (2009)
Issue (Month): 8 (December)
Pages: 1293-1316

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Handle: RePEc:eee:jimfin:v:28:y:2009:i:8:p:1293-1316

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Web page: http://www.elsevier.com/locate/inca/30443

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Keywords: Financial crisis Contagion Collateralized debt obligations ABX Money market funds;

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References

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  1. Markus K. Brunnermeier & Lasse Heje Pedersen, 2007. "Market Liquidity and Funding Liquidity," NBER Working Papers 12939, National Bureau of Economic Research, Inc.
  2. Margarita Samartín & Gerald Dwyer, 2004. "Why do banks promise to pay par on demand?," 2004 Meeting Papers 372, Society for Economic Dynamics.
  3. Naohiko Baba & Robert N McCauley & Srichander Ramaswamy, 2009. "US dollar money market funds and non-US banks," BIS Quarterly Review, Bank for International Settlements, March.
  4. Mardi Dungey & Jerry Dwyer & Tom Flavin, 2009. "Vintage and credit rating: what matters in the ABX data during the credit crunch?," Proceedings, Federal Reserve Bank of San Francisco, issue Jan.
  5. Ashcraft, Adam B. & Schuermann, Til, 2008. "Understanding the Securitization of Subprime Mortgage Credit," Foundations and Trends(R) in Finance, now publishers, vol. 2(3), pages 191-309, June.
  6. Milne , Alistair & Wood, Geoffrey, 2008. "Shattered on the Rock? British financial stability from 1866 to 2007," Research Discussion Papers 30/2008, Bank of Finland.
  7. Gorton, Gary B., 2008. "The panic of 2007," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, pages 131-262.
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Citations

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Cited by:
  1. Mardi Dungey & Gerald P. Dwyer & Thomas Flavin, 2011. "Systematic and liquidity risk in subprime-mortgage backed securities," Working Paper 2011-15, Federal Reserve Bank of Atlanta.
  2. Sekkel, Rodrigo, 2011. "International evidence on bond risk premia," Journal of Banking & Finance, Elsevier, vol. 35(1), pages 174-181, January.
  3. Priscilla Liang & Thomas D. Willett & Nan Zhang, 2010. "The Slow Spread Of The Global Crisis," Journal of International Commerce, Economics and Policy (JICEP), World Scientific Publishing Co. Pte. Ltd., vol. 1(01), pages 33-58.
  4. Barry Eichengreen & Ashoka Mody & Milan Nedeljkovic & Lucio Sarno, 2009. "How the Subprime Crisis Went Global: Evidence from Bank Credit Default Swap Spreads," NBER Working Papers 14904, National Bureau of Economic Research, Inc.
  5. Connor, Gregory & Flavin, Thomas & O’Kelly, Brian, 2012. "The U.S. and Irish credit crises: Their distinctive differences and common features," Journal of International Money and Finance, Elsevier, vol. 31(1), pages 60-79.
  6. William Lang & Julapa Jagtiani, 2010. "The Mortgage and Financial Crises: The Role of Credit Risk Management and Corporate Governance," Atlantic Economic Journal, International Atlantic Economic Society, vol. 38(2), pages 123-144, June.
  7. Giovanni, Calice, 2011. "The subprime asset-backed securities market and the equity prices of large complex financial institutions," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 21(4), pages 585-604, October.
  8. Kotkatvuori-Örnberg, Juha & Nikkinen, Jussi & Äijö, Janne, 2013. "Stock market correlations during the financial crisis of 2008–2009: Evidence from 50 equity markets," International Review of Financial Analysis, Elsevier, vol. 28(C), pages 70-78.
  9. Goda, Thomas & Lysandrou, Photis & Stewart, Chris, 2013. "The contribution of US bond demand to the US bond yield conundrum of 2004–2007: An empirical investigation," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 27(C), pages 113-136.
  10. Silvio Contessi & Pierangelo De Pace & Massimo Guidolin, 2013. "How did the financial crisis alter the correlations of U.S. yield spreads?," Working Papers 2013-005, Federal Reserve Bank of St. Louis.
  11. Dwyer, Gerald P. & Lothian, James R., 2012. "International and historical dimensions of the financial crisis of 2007 and 2008," Journal of International Money and Finance, Elsevier, vol. 31(1), pages 1-9.

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