Search Results for « Financial Crisis »

This paper provides an asymmetric information framework for understanding the nature of financial crises.It provides the following precise definition of a financial crisis: A financial crisis is a disruption to financial markets in which adverse selection and moral hazard problems become much worse, so that financial markets are unable to efficiently channel funds to those who have the most productive investment opportunities.As a result, a financial crisis can drive the economy away from an equilibrium with high output in which financial markets perform well to one in which output declines sharply.The asymmetric information framework explains the patterns in the data and many features of these crises which are otherwise hard to explain.It indicates that financial crises have effects over and above those resulting from bank panics and therefore provides a rationale for an expanded lender-of-last resort role for the central bank in which the central bank uses the discount window to provide liquidity to sectors outside of the banking system.

Real estate is, by definition, local as it is spatially fixed. Mortgage lending, however, has developed from a local to a national market and is increasingly a global market today. An understanding of the financial crisis is ultimately a spatialised understanding of the linkages between local and global. This article looks at the geographies of the mortgage crisis and credit crunch and asks the question: how are different places affected by the crisis? The article looks at different states, different cities, different neighbourhoods and different financial centres. Investors in many places had invested in residential mortgage backed securities and have seen their value drop. Housing bubbles, faltering economies and regulation together have shaped the geography of the financial crisis on the state and city level in the US. Subprime and predatory lending have affected low‐income and minority communities more than others and we therefore not only see a concentration of foreclosures in certain cities, but also in certain neighbourhoods. On an international level, the long‐term economical and political consequences of this are still mostly unknown, but it is clear that some financial centres in Asia (including the Middle East) will become more important now that globalisation is coming full circle. This article does not present new empirical research, but brings together work from different literatures that all in some way have a specific angle on the financial crisis. The aim of this article is to make the geographical dimensions of the financial crisis understandable to geographers that are not specialists in all – or even any – of these literatures, so that they can comprehend the spatialisation of this crisis.

Conventional wisdom held that housing prices couldn't fall. But the spectacular boom and bust of the housing market during the first decade of the twenty-first century and millions of foreclosed homeowners have made it clear that housing is no different from any other asset in its ability to climb and crash. Housing and the Financial Crisis looks at what happened to prices and construction both during and after the housing boom in different parts of the American housing market, accounting for why certain areas experienced less volatility than others. It then examines the causes of the boom and bust, including the availability of credit, the perceived risk reduction due to the securitization of mortgages, and the increase in lending from foreign sources. Finally, it examines a range of policies that might address some of the sources of recent instability.

Ben Bernanke's history of the Federal Reserve and its response to the 2008 financial crisis In 2012, Ben Bernanke, chairman of the U.S. Federal Reserve, gave a series of lectures about the Federal Reserve and the 2008 financial crisis, as part of a course at George Washington University on the role of the Federal Reserve in the economy. In this unusual event, Bernanke revealed important background and insights into the central bank's crucial actions during the worst financial crisis since the Great Depression. Taken directly from these historic talks, The Federal Reserve and the Financial Crisis offers insight into the guiding principles behind the Fed's activities and the lessons to be learned from its handling of recent economic challenges. Bernanke traces the origins of the Federal Reserve, from its inception in 1914 through the Second World War, and he looks at the Fed post-1945, when it began operating independently from other governmental departments such as the Treasury. During this time the Fed grappled with episodes of high inflation, finally tamed by then-chairman Paul Volcker. Bernanke also explores the period under his predecessor, Alan Greenspan, known as the Great Moderation. Bernanke then delves into the Fed's reaction to the recent financial crisis, focusing on the central bank's role as the lender of last resort and discussing efforts that injected liquidity into the banking system. Bernanke points out that monetary policies alone cannot revive the economy, and he describes ongoing structural and regulatory problems that need to be addressed. Providing first-hand knowledge of how problems in the financial system were handled, The Federal Reserve and the Financial Crisis will long be studied by those interested in this critical moment in history.

Abstract This article explores the link between the financial crisis and Euroscepticism at the level of public opinion, building on and developing further the literature on the impact of economic, identity and institutional factors on Euroscepticism. It argues that the economic crisis did not substantially bring economic factors back in as an important source of Euroscepticism, even though the most pronounced increase in Euroscepticism has taken place in the countries most affected by the crisis. By contrast, national identity and political institutions play an increasingly important role in explaining public Euroscepticism.

Has lobbying by financial institutions contributed to the financial crisis?This paper uses detailed information on financial institutions' lobbying and mortgage lending activities to answer this question.We find that lobbying was associated with more risk-taking during 2000-07 and with worse outcomes in 2008.In particular, lenders lobbying more intensively on issues related to mortgage lending and securitization (i) originated mortgages with higher loan-to-income ratios, (ii) securitized a faster growing proportion of their loans, and (iii) had faster growing originations of mortgages.Moreover, delinquency rates in 2008 were higher in areas where lobbying lenders' mortgage lending grew faster.These lenders also experienced negative abnormal stock returns during the rescue of Bear Stearns and the collapse of Lehman Brothers, but positive abnormal returns when the bailout was announced.Finally, we find a higher bailout probability for lobbying lenders.These findings suggest that lending by politically active lenders played a role in accumulation of risks and thus contributed to the financial crisis.