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A Tale of Two Crises: The 2008 Mortgage Meltdown and the 2020 COVID-19 Crisis

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  • Chester S Spatt
  • Jeffrey Pontiff

Abstract

The causes and consequences of the 2008 mortgage meltdown and 2020 COVID-19 crisis are quite different: the 2008 mortgage meltdown reflected infection of the financial system due to excess leverage and poor-quality mortgage loans, and the recent crisis reflects a substantial global economic shock to contain the viral outbreak of the coronavirus. Yet the financial and medical systems share many elements, such as opacity and interconnectedness as well as adequate buffers and reserves. We examine these themes as well as asset pricing, moral hazard (though it was at the root of the crisis only in the Great Recession), the consequences for government as a systemic actor, economic concentration, and capital market regulation in the two crises. In both crises, interventions in financial markets and disruptions in the housing market played important, but differing, roles. The recent crisis elucidates open questions about the foundation of financial economics and risk sharing.

Suggested Citation

  • Chester S Spatt & Jeffrey Pontiff, 0. "A Tale of Two Crises: The 2008 Mortgage Meltdown and the 2020 COVID-19 Crisis," The Review of Asset Pricing Studies, Society for Financial Studies, vol. 10(4), pages 759-790.
    • Handle: RePEc:oup:rasset:v:10:y::i:4:p:759-790.
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    File URL: http://hdl.handle.net/10.1093/rapstu/raaa019
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    More about this item

    JEL classification:

    • G1 - Financial Economics - - General Financial Markets
    • G2 - Financial Economics - - Financial Institutions and Services
    • G3 - Financial Economics - - Corporate Finance and Governance
    • E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates
    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
    • B2 - Schools of Economic Thought and Methodology - - History of Economic Thought since 1925

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