Financial Crisis American Style

Barry Bosworth and Aaron Flaaen
Additional contact information
Barry Bosworth: The Brookings Institution, 1775 Massachusetts Ave., Washington DC 20036 USA.
Aaron Flaaen: The Brookings Institution, 1775 Massachusetts Ave., Washington DC 20036 USA.

Asian Economic Papers, 2009, vol. 8, issue 3, pages 146-170

Abstract: This paper reviews some of the research on the causes of the financial crisis of 2008-09, highlights the key events that triggered a financial panic in September 2008, and summarizes the key policy actions that the United States has taken to ameliorate the crisis. We document the characteristics and growth of the sub-prime mortgage market, and the distorted incentives and flawed regulatory structure surrounding the secondary market for mortgage-backed securities. We also assess the role for macroeconomic determinants of the crisis that serve to explain the bubble in U.S. asset prices, most notably low global interest rates attributed to either loose monetary policy or excess global saving. Although low global interest rates may have contributed to the boom in housing markets and speculative excesses, we believe that the financial innovations and microeconomic distortions played a more fundamental role. Finally, a recovery marked by higher private saving, weak domestic investment, and a large public deficit appears to be unsustainable. Ultimately, the U.S. economy will need to shift about 3 percent of GDP from domestic consumption to the export sector. This will pose some serious challenges to Asian economies that have come to rely on exports to the U.S. market. (c) 2009 The Earth Institute at Columbia University and the Massachusetts Institute of Technology.

Date: 2009

Downloads: (external link)
http://www.mitpressjournals.org/doi/pdfplus/10.1162/asep.2009.8.3.146 link to full text (text/html)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: http://EconPapers.repec.org/RePEc:tpr:asiaec:v:8:y:2009:i:3:p:146-170

Ordering information: This journal article can be ordered from
http://www.mitpressjournals.org/loi/asep

Access Statistics for this article

Asian Economic Papers is edited by Jeffrey D. Sachs, Yunjong Wang and Wing Thye Woo

More articles in Asian Economic Papers from MIT Press
Series data maintained by Christopher F. Baum ().