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The Next Financial Crisis

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  • Yochanan Shachmurove

    ()
    (Department of Economics, the City Collge of the City University of New York)

Abstract

The examination of U.S. crises reveals that the current financial crisis follows past patterns. An investment bubble creates excess demand for new financing instruments. During the railroad bubbles of the nineteenth century loans were issued at a pace higher than many companies could pay back. The current housing bubble originated from issuing sub-prime mortgages that assume that housing prices would only rise. The increased demand for credit induces financial innovations and instruments that circumvent existing regulations. Inevitably, the bubble bursts. The history of financial crises teaches that policy reforms and new regulations cannot prevent future financial crises.

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Bibliographic Info

Paper provided by Penn Institute for Economic Research, Department of Economics, University of Pennsylvania in its series PIER Working Paper Archive with number 10-027.

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Length: 23 pages
Date of creation: 06 Aug 2010
Date of revision:
Handle: RePEc:pen:papers:10-027

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Keywords: Financial Crises; Financial Regulations and Reforms; Banking Panics; Banking Runs; Nineteenth and Twentieth Century Crises; Bankruptcies; Federal Reserve Bank; Subprime Mortgage; Troubled Asset Relief Program (TARP); Collateralized Debt Obligations (CDO); Mortgage Backed Securities (MBO); Glass-Steagall Act; J.P. Morgan Chase; Bear Stearns; Augustus Heinze; Timothy Geithner; Paul Volcker;

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References

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  1. Carmen M. Reinhart & Kenneth S. Rogoff, 2009. "The Aftermath of Financial Crises," American Economic Review, American Economic Association, American Economic Association, vol. 99(2), pages 466-72, May.
  2. Carmen M. Reinhart & Kenneth S. Rogoff, 2008. "Is the 2007 US Sub-prime Financial Crisis So Different? An International Historical Comparison," American Economic Review, American Economic Association, American Economic Association, vol. 98(2), pages 339-44, May.
  3. Elena Loukoianova & Gianni De Nicoló & John H. Boyd, 2009. "Banking Crises and Crisis Dating," IMF Working Papers 09/141, International Monetary Fund.
  4. Fabian Valencia & Luc Laeven, 2008. "Systemic Banking Crises," IMF Working Papers 08/224, International Monetary Fund.
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Cited by:
  1. Radislav Jovovic & Nebojsa Jovovic, 2013. "Understanding Shadow Banking And It'S Role In The Recent Financial Crisis," Montenegrin Journal of Economics, Economic Laboratory for Transition Research (ELIT), Economic Laboratory for Transition Research (ELIT), vol. 9(1), pages 75-84.
  2. Yochanan Shachmurove, 2012. "Financial Crises And Econonomic Institutions An Institutional Account Of The Usa Financial Crisis," Montenegrin Journal of Economics, Economic Laboratory for Transition Research (ELIT), Economic Laboratory for Transition Research (ELIT), vol. 8(2), pages 45-52.
  3. Kowalski, Tadeusz, 2012. "The economic and monetary union countries vs. the global crisis," MPRA Paper 37942, University Library of Munich, Germany.

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