Exam Prep - Fin Crisis Flashcards
What does the Rajan (2010) hypothesis say?
There is a inequlity - debt - financial crisis nexus. Mounting inequality puts pressure on politicians to improve welfare -> extensive lending and credit loosening takes place of such reforms
Who says that: in the absence of appropriate redistributive measures and welfare policies, the poor have been able to access higher and higher amounts of welfare in order to sustain consumption?
Rajan, 2010
What does Haldane 2009 say?
Too big to fail banks are systemically risky because perverse incentives for risk taking AND moral hazard of assuming they will be bailed out
What does Joseph, 2014 say?
Risk is different for lenders and borrowers in currenct financial system. Traders + agents are backstopped by bail outs and govt guarantees, whereas consumers are locked in debt forever. Atittudes to risk thus also vary
Who talks about the difference in the temporality of risk between finance ‘bros’ and borrowers? Who also talks about the predatory, racial aspect of subprime loans pre 2009 USA?
Joseph, 2014
Who talks about the issue of too big to fail banks? Who mentions the fact that small banks have the incentive to become bigger to increase chance of being bailed out?
Haldane, 2009
What do Nelson and Katzenstein, 2014 have to say?
Distinction between risk and uncertainty - current financial system operates solely in a world of (firm level) risk
Conventions are important, and conventions about
- risk taking
- securitisation
- risk modelling and management
- CB behaviour
Have fed the GFC.
Who talks about the role of conventions for the GFC, present in risk taking, securitisation, risk management and CB behaviour, through the channels of:
- compeititon
- learning
- emulation?
Nelson and Katzenstein, 2014
Who talks about how the financialisation and globalisation of society render crisis intervention a) more politically contentious and b) slower and less effective?
Chwieroth and Walter, 2019
What does MacKenzie 2011 have to say about the development of finance over the past century?
Financial economics and innovation went hand in hand, to create a different type of science and practice; larger ideological shifts towards neolib economics + efficient market hypothesis + the technisisation of economics created new assets and new ways to do finance
Who divides the motives behind the financial crisis into four buckets?
a) regulatory mistakes
b) the expansion of securitization
c) cheap credit
d) global imbalances
Helleiner, 2011
What does Adam Tooze (2018) have to say about the interconnected, global nature of the GFC?
Financial systems are very interconnected, with the US in the center. EU banks were heavily involved in buying subprime assets and spreading them everywhere across the system
Who talks about the Economics Fundamentals, govt failure, explanasions for the Asian Crises?
Krugman
Who talks about the Market Failure aspects of the Asian Crises, i.e.: the inherent irationality of markets, the info cascades, the panics, the multiple equilibria?
Obstfeld
What are two other avenues of explanation for the Asian crises?
- domestic political ecpnomy (esp about institutional weakness, lack of checks and balances, personalization of politics)
- developmental choices (fast growth, industrialisation, open capital accounts)
Who talks about all crises being global? And the financial system being highly a) interdependent and b) asymmetrical? And the flow of foreign capital exposing one to risk?
Danzman et al, 2017
Who talks about the two adjustment options (external or internal) and the timing of the adjustment choices during the Asian Financial Crises?
Walter 2013 answers WHEN and HOW do governments adjust, looking at electoral cycles, as well as national preferences and specifics of the economy. Good example: Hong Kong
What does Pepinski 2008 have to say about the Asian financial crises?
Pepinski 2008 talks about how coalitions of interests inside a country poses different constraints on the executive during times of macro adjustment; e.g.: Indonesia (coalitions of military and politicians fixed capital + chinese capital) vs Malaysia (coalition of ethnic malays)
What does Pisani-Ferry (2012) have to say about the macroeconomic tools to the Eurozone crisis?
The way the EMU was designed was uncapable of dealing w financial crises (bank-sovereign independence, no co-responsibility for debt, strict no-monetary financing)
Needed solutions:
- lender of last resort
- banking federation
- fiscal union that co-issue ponds
EM: lower debt thresholds!!!
What do Friedan and Walter, 2017 have to say about the Eurozone crisis?
Greece - sovereign debt crisis
All others - banking crisis
So how did a private banking crisis become a sovereign debt crisis?
Crisis coming from issues between lending and borrowing countries;
Lender countries refuse to adjust internally
Borrower countries borrow excessively, money goes to asset bubbles as opposed to productive pursuits
AND all EU borrowers have the same credit worthiness
What do Johnston and Regan (2016) have to say about the incompatibilities of national varieties of capitalism?
countries within the EMU have deeply different economic systems and growth models
diverging real exchange rates between S and N
2 inflations regimes to coexist inside the EMU
Periphery goods as permanently overvalued, increasing the competitive gap between N and S
