The Next Financial Crisis
AbstractThe 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 InfoPaper provided by Penn Institute for Economic Research, Department of Economics, University of Pennsylvania in its series PIER Working Paper Archive with number 10-027.
Length: 23 pages
Date of creation: 06 Aug 2010
Date of revision:
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;
Find related papers by JEL classification:
- E0 - Macroeconomics and Monetary Economics - - General
- E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles
- E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
- E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
- E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook
- N0 - Economic History - - General
- N1 - Economic History - - Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations
- N2 - Economic History - - Financial Markets and Institutions
- G0 - Financial Economics - - General
- G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
- G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
This paper has been announced in the following NEP Reports:
- NEP-ACC-2010-08-14 (Accounting & Auditing)
- NEP-ALL-2010-08-14 (All new papers)
- NEP-CBA-2010-08-14 (Central Banking)
- NEP-HIS-2010-08-14 (Business, Economic & Financial History)
- NEP-MAC-2010-08-14 (Macroeconomics)
- NEP-REG-2010-08-14 (Regulation)
- NEP-RMG-2010-08-14 (Risk Management)
- NEP-URE-2010-08-14 (Urban & Real Estate Economics)
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.:
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