Deciphering the Liquidity and Credit Crunch 2007–2008

The financial market turmoil in 2007 and 2008 has led to the most severe financial crisis since the Great Depression and threatens to have large repercussions on the real economy. The bursting of the housing bubble forced banks to write down several hundred billion dollars in bad loans caused by mortgage delinquencies. At the same time, the stock market capitalization of the major banks declined by more than twice as much. While the overall mortgage losses are large on an absolute scale, they are still relatively modest compared to the $8 trillion of U.S. stock market wealth lost between October 2007, when the stock market reached an all-time high, and October 2008. This paper attempts to explain the economic mechanisms that caused losses in the mortgage market to amplify into such large dislocations and turmoil in the financial markets, and describes common economic threads that explain the plethora of market declines, liquidity dry-ups, defaults, and bailouts that occurred after the crisis broke in summer 2007.

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Atif Mian and Amir Sufi. House of Debt: How They (and You) Caused the Great Recession, and How We Can Prevent It from Happening Again. University of Chicago Press. USA. 2014. 192 pages.

The Pakistan Development Review ◽

10.30541/v52i3pp.247-260 ◽

2013 ◽

Vol 52 (3) ◽

pp. 247-260

Author(s):

Asad Zaman Kemal

Keyword(s):

Financial Crisis ◽

Financial Markets ◽

Great Depression ◽

Global Financial Crisis ◽

Aggregate Demand ◽

Jel Classification ◽

Recent Book ◽

The Great Recession ◽

The Great Depression ◽

University Of Chicago Press

This is a review and a summary of some of the key arguments presented by Mian and Sufi in their recent book “House of Debt.” It highlights the contribution of Mian and Sufi by showing how they have solved the mystery of why there was a huge drop in aggregate demand during the Great Depression of 1929 and also following the recent Global Financial Crisis of 2007-08. The article shows how major economists like Keynes, Friedman, Lucas and others tried and failed to provide an adequate explanation of this mystery. The key to the mystery is the huge amount of levered debt present during both of these economic crises. The solution suggested by Mian and Sufi is to replace interest based debt by equity based contracts in financial markets. This solution resonates strongly with Islamic teachings on finance. These links are also highlighted in this article. JEL classification: B22, E12, E32 Keywords: Great Depression, Global Financial Crisis, Debt-Deflation, Levered Debt

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The Repeal Of The Glass- Steagall Act And The Current Financial Crisis

Journal of Business & Economics Research (JBER) ◽

10.19030/jber.v9i1.949 ◽

2011 ◽

Vol 9 (1) ◽

Cited By ~ 13

Author(s):

Corinne Crawford

Keyword(s):

Financial Crisis ◽

Stock Market ◽

Great Depression ◽

Conflict Of Interest ◽

Investment Banking ◽

Too Big To Fail ◽

Stock Market Crash ◽

Financial Conglomerates ◽

The Great Depression ◽

Current Financial Crisis

The Glass-Steagall Act was passed in 1933 in response to the failure of the banks following the Great Depression.  One out of every five banks failed in the aftermath of the stock market crash. Legislators and regulators questioned the role the underwriting of securities played in the financial collapse. Many believed these investment banking activities caused a conflict of interest in that banks often suggested that their customers purchase securities the banks had underwritten.  They believed that this conflict of interest contributed significantly to the stock market crash and the bank failures.  The Glass-Steagall Act forced banks to choose between being a commercial bank or an investment bank, in effect constructing a wall between commercial banking and investing banking activities.  The Glass- Steagall Act was the first law signed by President Franklin D. Roosevelt upon taking the oath of office.  Almost immediately upon enactment, the financial community lobbied to have the Act repealed.  Over the years, this persistent lobbying led to a continual reinterpretation and liberalization of the Glass-Steagall Act, until the Act was repealed in 1999.  On the dawn of repeal, the late Senator Paul Wellstone made an impassioned plea on the Senate floor. He said the repeal of Glass-Steagall would enable the creation of financial conglomerates which would be too big to fail.  Furthermore, he believed that the regulatory structure would not be able to monitor the activities of these financial conglomerates and they would eventually fail due to engaging in excessively risky financial transactions.  Ultimately, he said, prophetically, that the taxpayers would be forced to bail out these too-big-to-fail financial institutions.  Clearly, Senator Wellstone was in the minority as the legislation repealing the Glass-Steagall Act was passed in both the House and the Senate with large majorities.  President Bill Clinton signed the legislation into law in late November, 1999.  It has now been over ten years since the repeal of Glass-Steagall and the United States is in the grip of the largest financial crisis since the Great Depression.  Legislators and regulators are again questioning the role that the investment banking activities of commercial banks have played in a financial crisis.  Some believe the repeal of Glass-Steagall contributed significantly to the current financial crisis.  Others believe that if Glass-Steagall had still been in place, the financial crisis would be much worse.  This paper examines the role that the repeal of Glass-Steagall played in the current financial crisis.

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The Spillover and Transmission of Chinese Financial Markets Risk

International Business Research ◽

10.5539/ibr.v11n8p66 ◽

2018 ◽

Vol 11 (8) ◽

pp. 66

Author(s):

Sha Zhu

Keyword(s):

Financial Crisis ◽

Stock Market ◽

Financial Markets ◽

Financial Market ◽

Spillover Effect ◽

Financial Stress ◽

Stress Index ◽

2008 Financial Crisis ◽

The Us ◽

Financial Stress Index

After the 2008 financial crisis, the whole world financial markets became more fluctuates, the same to China also. It is necessary to pay great attention to high volatility problem in Chinese market, and also the uncertainty problem, risk accumulation and spillover effect come along with it. This paper calculates stock market return and builds financial stress index to explore the risk spillover effect. Empirical results show that the Chinese financial market have higher volatility than other countries. The Chinese stock market had higher dynamic market co-movement with international financial markets after 2008 financial crisis. What’s more, this article also finds the financial risk spreads between China and US. When the US financial stress index increases, China's financial stress index experiences a larger increase. However, after the change in China's financial stress index, the US financial stress index has no obvious trend of change. So we should pay more attention to periods of Chinese financial market risk and its spillover.

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Financial Factors in the Great Depression

The Journal of Economic Perspectives ◽

10.1257/jep.7.2.61 ◽

1993 ◽

Vol 7 (2) ◽

pp. 61-85 ◽

Cited By ~ 74

Author(s):

Charles W Calomiris

Keyword(s):

Stock Market ◽

Financial Markets ◽

Great Depression ◽

Bank Failure ◽

Relative Importance ◽

Money Stock ◽

Financial Factors ◽

The Great Depression ◽

General Relevance

Macroeconomists have long argued that financial markets were important sources and propagators of decline during the Great Depression. Turning points during the Depression often coincided with or were preceded by dramatic events in financial markets: stock market collapse, waves of bankruptcy and bank failure, and contractions in the money stock. But the mechanism through which financial factors contributed to the Depression has been a source of controversy, as has been the relative importance of financial factors in explaining the origins and persistence of the Depression. This essay reviews the literature on the role of financial factors in the Depression and draws some lessons that have more general relevance for the study of the Depression and for macroeconomics.

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Economies of Turkic Republics after 2008 Global Crisis and their Commercial Relations with Turkey

10.36880/c01.00220 ◽

2010 ◽

Author(s):

Müslüme Narin ◽

Akın Marşap

Keyword(s):

Growth Rate ◽

Financial Markets ◽

Great Depression ◽

Economic Crisis ◽

World Economy ◽

Developing Economies ◽

Real Economy ◽

Global Crisis ◽

Developed Economies ◽

The Great Depression

In 2008, world economy has faced with the largest crisis, since the great depression in1929. The economic crisis, which started at financial markets, has turned into dramatic occasion in the second half of 2008 and got under control real economy. As a result of globalism, this crisis has affected developing economies as much as developed economies. Growth rate of Turk Republics and Turkey has decreased with the effect of the crisis. The aim of this paper is to analyze Turkic Republics economies after global crisis and their commercial relations with Turkey. By this way, first the causes of the global crisis and its effects on world economy will be focused and then, all of the economical situation of the Turkic Republics and global crisis has affected on its will be discussed. Finally, Turkic Republics commercial relations with Turkey will be inquired.

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Financial market impact on the real economy: An assessment of asymmetries and volatility linkages between the stock market and unemployment rate

The Journal of Economic Asymmetries ◽

10.1016/j.jeca.2015.10.003 ◽

2016 ◽

Vol 13 ◽

pp. 1-7 ◽

Cited By ~ 4

Author(s):

Mark J. Holmes ◽

Nabil Maghrebi

Keyword(s):

Stock Market ◽

Financial Market ◽

Unemployment Rate ◽

Real Economy ◽

Market Impact ◽

The Real ◽

Volatility Linkages

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Real Estate Soars and Financial Crises: Recent Stories

Sustainability ◽

10.3390/su10124559 ◽

2018 ◽

Vol 10 (12) ◽

pp. 4559 ◽

Cited By ~ 5

Author(s):

Hanwool Jang ◽

Yena Song ◽

Sungbin Sohn ◽

Kwangwon Ahn

Keyword(s):

Financial Crisis ◽

Real Estate ◽

Stock Market ◽

Global Financial Crisis ◽

Real Estate Market ◽

Real Economy ◽

The Real ◽

The Real Estate ◽

Real Estate Bubble ◽

The Global Financial Crisis

This paper studies the contribution of real estate bubble to a financial crisis. First, we document symptoms of a real estate bubble along with a slowdown of the real economy and find indicators of an imminent crash of the stock market, triggering a sense of déjà vu from the 2008 crisis. However, we show that the relationship between real estate and financial markets has changed since the crisis. The empirical analyses provide evidence that the monetary policy has recovered its control over mortgage rates, which had been lost prior to the global financial crisis, and that the real estate market does not have a Granger causality relationship with the stock market any more. Findings suggest that an imminent financial market crash is not likely to be catalyzed by a real estate bubble.

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Investigating the Financial Crisis of the Iranian Stock Exchange Using Transfer Entropy Method and comparing it with the Dow Jones Financial Market

Propósitos y Representaciones ◽

10.20511/pyr2021.v9nspe1.886 ◽

2021 ◽

Vol 9 (SPE1) ◽

Author(s):

Arefeh Mohaghegh ◽

Mohsen Hamidiyan ◽

Seyed Ali Hosseini Esfidvajani ◽

Gholamreza Jafari

Keyword(s):

Financial Crisis ◽

Stock Market ◽

Financial Markets ◽

Financial Market ◽

Stock Exchange ◽

Entropy Method ◽

Transfer Entropy ◽

Preferred Direction ◽

The Us ◽

Time Periods

The focus of the present study is on the financial markets of Iran. In fact, the purpose of the present study is to examine the critical state of the Iranian stock market and compare it with one of the famous American markets called Dow Jones. The purpose of the financial crisis is to examine the effect of the interaction of companies within a market. According to modern financial theory, crisis is a phenomenon of market orientation and finding a negative preferred direction among companies. The stock market data of 180 companies of this market that were active during the period of 2008 to 2019 were used to investigate the financial crisis of the Iranian Stock Exchange. The results show that the average transfer entropy for 180 firms in the Iranian stock market is more random. That is to say, the observed declines do not correspond to the time periods of the crisis in the stock market. Although transfer entropy seems to be a good indicator for determining the period of crisis in the US Dow Jones market, it cannot be an indicator for determining the financial crisis for the Iranian stock market.

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Global Financial Crisis and Its Impact on Russia

Voprosy Ekonomiki ◽

10.32609/0042-8736-2009-1-9-27 ◽

2009 ◽

pp. 9-27 ◽

Cited By ~ 9

Author(s):

A. Kudrin

Keyword(s):

Monetary Policy ◽

Fiscal Policy ◽

Financial Crisis ◽

Central Bank ◽

Global Financial Crisis ◽

Developed Countries ◽

Real Economy ◽

Energy Prices ◽

Russian Government ◽

The Real

The article examines the causes of origin and manifestation of the current global financial crisis and the policies adopted in developed countries in 2007—2008 to deal with it. It considers the effects of the financial crisis on Russia’s economy and monetary policy of the Central Bank in the current conditions as well as the main guidelines for the fiscal policy under different energy prices. The measures for fighting the crisis that the Russian government and the Central Bank use to support the real economy are described.

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U.S. Financial Markets Growth and the Real Economy

SSRN Electronic Journal ◽

10.2139/ssrn.2336146 ◽

2013 ◽

Author(s):

Claire Y. C. Liang ◽

David McLean ◽

Mengxin Zhao

Keyword(s):

Financial Markets ◽

Real Economy ◽

The Real

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