Stages of the Ongoing Global Financial Crisis: Is There a Wandering Asset-Price Bubble?
AbstractThis study identifies five distinctive stages of the current global financial crisis: the meltdown of the subprime mortgage market, spillovers into broader credit market, the liquidity crisis epitomized by the fallout of Northern Rock, Bear Stearns with contagion effects on other financial institutions, the commodity price bubble, and the ultimate demise of investment banking in the U.S. Monetary policy responses aimed at stabilizing financial markets are proposed. The study argues that the severity of the crisis is influenced strongly by changeable allocations of global savings, which lead to over-pricing of varied types of assets. The study calls such process a "wandering asset-price bubble". Unstable allocations have elevated market, credit and liquidity risks. Since its original outbreak induced by the demise of the subprime mortgage market and the mortgage-backed securities in the U.S., the crisis has reverberated across other credit areas, structured financial products and global financial institutions.
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Bibliographic InfoPaper provided by CASE-Center for Social and Economic Research in its series CASE Network Studies and Analyses with number 0372.
Length: 26 Pages
Date of creation: 2008
Date of revision:
subprime mortgage crisis; credit crisis; liquidity crisis; market risk; credit risk; default risk; Level 3 assets; Basel II;
Find related papers by JEL classification:
- G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
- G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
- G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
- G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
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