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The credit crunch of 2007-2008: a discussion of the background, market reactions, and policy responses

This paper discusses the events surrounding the 2007-08 credit crunch. It highlights the period of exceptional macrostability, the global savings glut, and financial innovation in mortgage-backed securities as the precursors to the crisis. The credit crunch itself occurred when house prices fell and subprime mortgage defaults increased. These events caused investors to reappraise the risks of high-yielding securities, bank failures, and sharp increases in the spreads on funds in interbank markets. The paper evaluates the actions of the authorities that provided liquidity to the markets and failing banks and indicates areas where improvements could be made. Similarly, it examines the regulation and supervision during this time and argues the need for changes to avoid future crises.

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File URL: http://research.stlouisfed.org/publications/review/08/09/Mizen.pdf
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Article provided by Federal Reserve Bank of St. Louis in its journal Review.

Volume (Year): (2008)
Issue (Month): Sep ()
Pages: 531-568

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Handle: RePEc:fip:fedlrv:y:2008:i:sep:p:531-568:n:v.90no.5
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  1. Reinhart, Carmen & Felton, Andrew, 2008. "The First Global Financial Crisis of the 21st Century," MPRA Paper 11862, University Library of Munich, Germany.
  2. repec:fip:fedgsq:y:2002:i:nov21 is not listed on IDEAS
  3. Giovanni Dell'Ariccia & Luc Laeven & Deniz Igan, 2008. "Credit Booms and Lending Standards; Evidence From the Subprime Mortgage Market," IMF Working Papers 08/106, International Monetary Fund.
  4. Ben S. Bernanke & Cara S. Lown, 1991. "The Credit Crunch," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 22(2), pages 205-248.
  5. Rajdeep Sengupta & William R. Emmons, 2007. "What is subprime lending?," Monetary Trends, Federal Reserve Bank of St. Louis, issue Jun.
  6. Ben S. Bernanke, 2002. "Deflation: making sure "it" doesn't happen here," Speech 530, Board of Governors of the Federal Reserve System (U.S.).
  7. Markus K. Brunnermeier, 2008. "Deciphering the Liquidity and Credit Crunch 2007-08," NBER Working Papers 14612, National Bureau of Economic Research, Inc.
  8. Holland, Thomas E, 1969. "'Operation Twist' and the Movement of Interest Rates and Related Economic Time Series," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 10(3), pages 260-65, October.
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