Anatomy and Lessons of the Global Financial Crisis
AbstractEmerging countries’ and particularly China's savings in the U.S. money market financed the U.S. overconsumption in the 2000s, which eventually led to the global financial crisis. The real estate mortgage market was the starting point. Non-equilibrium processes have been launched in the U.S. financial markets, which contradicted all previous theories concerning the economic equilibrium. The economic sciences do not have a model or empirically applied theories to this new situation. So the crisis could not be prevented nor predicted. The question is to what extent the existing market theories, the computational methods and the latest financial products may be responsible for the non-equilibrium. The paper examines these questions, namely the influence of the efficient market and modern portfolio theories also the Li copula function on the U.S. investment market. The problematic of moral hazard, greed, credit rating, corporate governance, limited liability and market regulation cannot be ignored neither. In conclusion, the author outlines a possible alternative measure against the outbreak of a new crise, indicates new trends in the research and draws lessons from the Hungarian economic policy.
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Bibliographic InfoArticle provided by State Audit Office of Hungary in its journal Public Finance Quarterly.
Volume (Year): 55 (2010)
Issue (Month): 4 ()
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Web page: http://www.asz.hu
mortgage loans; investment fund; IMF; Federal Reserve; credit rating; efficient markets; modern portfolio theory; Li copula; morel hazard; greed;
Find related papers by JEL classification:
- G01 - Financial Economics - - General - - - Financial Crises
- G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
- G20 - Financial Economics - - Financial Institutions and Services - - - General
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