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The Evolution of the Financial Crisis of 2007—8

Published online by Cambridge University Press:  26 March 2020

Ray Barrell  and
E. Philip Davis
Ray Barrell*
Affiliation:
National Institute of Economic and Social Research
E. Philip Davis*
Affiliation:
National Institute of Economic and Social Research and Brunel University
*
e-mail e-mail [email protected]
e-mail e-mail [email protected]
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Abstract

The financial crisis that started in August 2008 has reached a climax in the autumn of 2008 with a wave of bank nationalisations across North America and Europe. Although banking crises are not uncommon, this is the largest since 1929–33. This paper discusses the build-up to the crisis, looking at the role of low real interest rates in stimulating an asset price bubble. That bubble was stocked by financial innovation and increases in lending. New financial products were not stress tested and have failed in the downturn. After discussing the bubbles we look at the collapse of the complex asset structure, and then put the crisis in the context of the literature. The paper concludes with a discussion of policy implications of the crisis, and advocates a significant improvement in the regulatory structure.

Keywords

Financial crisesasset bubblessecuritised assetsfinancial sector regulationE44G18
Type
Articles
Information
National Institute Economic Review , Volume 206 , October 2008 , pp. 5 - 14
Copyright
Copyright © 2008 National Institute of Economic and Social Research

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