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Leverage? What Leverage? A Deep Dive into the U.S. Flow of Funds in Search of Clues to the Global Crisis


  • Tamim Bayoumi
  • Ashok Vir Bhatia


This paper questions the view that leverage should have forewarned us of the global financial crisis of 2007-09, pointing to several gearing indicators that were neither useful portents of the onset of the crisis nor of its ferocity. Instead it shows, first, that the use of ill-suited collateral in the secured funding operations of U.S.-based investment banks was the fatal link between the collapse of structured finance and the global malfunction of funding markets that turbocharged the downdraft; and, second, that this insight (and others) can be decrypted from the Flow of Funds Accounts of the United States.

Suggested Citation

  • Tamim Bayoumi & Ashok Vir Bhatia, 2012. "Leverage? What Leverage? A Deep Dive into the U.S. Flow of Funds in Search of Clues to the Global Crisis," IMF Working Papers 12/162, International Monetary Fund.
  • Handle: RePEc:imf:imfwpa:12/162

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    References listed on IDEAS

    1. Adam Copeland & Antoine Martin & Michael Walker, 2010. "The tri-party repo market before the 2010 reforms," Staff Reports 477, Federal Reserve Bank of New York.
    2. Carmen M. Reinhart & M. Belen Sbrancia1, 2015. "The liquidation of government debt," Economic Policy, CEPR;CES;MSH, vol. 30(82), pages 291-333.
    3. Manmohan Singh & James Aitken, 2010. "The (Sizable) Role of Rehypothecation in the Shadow Banking System," IMF Working Papers 10/172, International Monetary Fund.
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    Cited by:

    1. repec:eee:finsta:v:32:y:2017:i:c:p:124-141 is not listed on IDEAS
    2. Juan A. Montecino & Gerald Epstein, 2014. "Intra-Financial Lending, Credit, and Capital Formation," Working Papers Series 21, Institute for New Economic Thinking.


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