Advanced Search
MyIDEAS: Login

Leverage and Asset Bubbles: Averting Armageddon with Chapter 11?

Contents:

Author Info

  • Marcus Miller
  • Joseph E. Stiglitz

Abstract

An iconic model with high leverage and overvalued collateral assets is used to illustrate the amplification mechanism driving asset prices to ‘overshoot’ equilibrium when an asset bubble bursts—threatening widespread insolvency and what Richard Koo calls a ‘balance sheet recession’. Besides interest rates cuts, asset purchases and capital restructuring are key to crisis resolution. The usual bankruptcy procedures for doing this fail to internalise the price effects of asset ‘fire-sales’ to pay down debts, however. We discuss how official intervention in the form of ‘super’ Chapter 11 actions can help prevent asset price correction causing widespread economic disruption.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.nber.org/papers/w15817.pdf
Download Restriction: no

Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 15817.

as in new window
Length:
Date of creation: Mar 2010
Date of revision:
Publication status: published as Marcus Miller & Joseph Stiglitz, 2010. "Leverage and Asset Bubbles: Averting Armageddon with Chapter 11?," Economic Journal, Royal Economic Society, vol. 120(544), pages 500-518, 05.
Handle: RePEc:nbr:nberwo:15817

Note: ME
Contact details of provider:
Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.
Phone: 617-868-3900
Email:
Web page: http://www.nber.org
More information through EDIRC

Related research

Keywords:

Other versions of this item:

Find related papers by JEL classification:

This paper has been announced in the following NEP Reports:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Prasanna Gai & Sujit Kapadia & Stephen Millard & Ander Perez, 2008. "Financial Innovation, Macroeconomic Stability and Systemic Crises," Economic Journal, Royal Economic Society, vol. 118(527), pages 401-426, 03.
  2. Edison, Hali J & Luangaram, Pongsak & Miller, Marcus, 2000. "Asset Bubbles, Leverage and 'Lifeboats': Elements of the East Asian Crisis," Economic Journal, Royal Economic Society, vol. 110(460), pages 309-34, January.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Hirano, Tomohiro & Inaba, Masaru, 2010. "Asset Price Bubbles in the Kiyotaki-Moore Model," MPRA Paper 36632, University Library of Munich, Germany.
  2. Chatelain, Jean-Bernard & Ralf, Kirsten, 2012. "The failure of financial macroeconomics and what to do about it," MPRA Paper 38474, University Library of Munich, Germany.
  3. Eleni Iliopulos & Thepthida Sopraseuth, 2012. "L'intermédiation financière dans l'analyse macroéconomique : Le défi de la crise," Working Papers halshs-00744047, HAL.
  4. repec:hal:psewpa:halshs-00744047 is not listed on IDEAS
  5. Vranceanu, Radu & Besancenot, Damien, 2011. "Experimental Evidence on the ‘Insidious’ Illiquidity Risk," ESSEC Working Papers WP1107, ESSEC Research Center, ESSEC Business School.
  6. Miller, Marcus & Zhang, Lei, 2012. "Whither Capitalism? Financial Externalities and Crisis," CAGE Online Working Paper Series 79, Competitive Advantage in the Global Economy (CAGE).
  7. repec:hal:cepnwp:halshs-00602107 is not listed on IDEAS
  8. Semmler, Willi & Bernard, Lucas, 2012. "Boom–bust cycles: Leveraging, complex securities, and asset prices," Journal of Economic Behavior & Organization, Elsevier, vol. 81(2), pages 442-465.
  9. Mauricio Arango & Carlos Esteban Posada & Jorge Andrés Tamayo, 2011. "El sistema crediticio, la política monetaria y un posible origen de ciclos y crisis financieras," ENSAYOS SOBRE POLÍTICA ECONÓMICA, BANCO DE LA REPÚBLICA - ESPE.
  10. repec:hal:wpaper:halshs-00602107 is not listed on IDEAS
  11. repec:hal:cesptp:halshs-00613188 is not listed on IDEAS

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:nbr:nberwo:15817. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ().

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.