Foreign Demand

Philip Arestis and Elias Karakitsos

Chapter 9 in The Post ‘Great Recession’ US Economy, 2010, pp 212-238 from Palgrave Macmillan

Abstract: Abstract As argued in chapter 1, the characteristic of the current downturn is the speed with which the collapse of the US housing market was transmitted to the rest of the world, causing a simultaneous deep recession in all major economies. Although one might quickly point out that this is due to globalisation, two particular channels can be discerned. First, the current world recession is the result of a US banking crisis triggered by the collapse of the subprime market when house prices began to fall. This very rapidly became a global banking crisis because foreign banks were as highly leveraged as US banks. Foreign banks held, along with other foreign investors, a large amount of distressed US assets. Moreover, the overleveraging of foreign banks means that they had also lent large amounts against low-quality assets. Finally, foreign banks had adopted the same practices as US banks and had issued Collateralised Debt Obligations (CDO) that were selling to their investors in an effort to get rid from their balance sheet these high-risk assets. Excessive greed, though, resulted in only a partial removal of these toxic assets from the balance sheet of foreign banks causing huge bank losses when asset prices worldwide started to tumble.

Keywords: House Price; Euro Area; Great Recession; Nominal Exchange Rate; Foreign Bank (search for similar items in EconPapers)
Date: 2010
References: Add references at CitEc
Citations:

There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it.

Related works:
Chapter: Foreign Demand (2004)
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: https://EconPapers.repec.org/RePEc:pal:palchp:978-0-230-27610-9_9

Ordering information: This item can be ordered from
http://www.palgrave.com/9780230276109

DOI: 10.1057/9780230276109_9

Access Statistics for this chapter

More chapters in Palgrave Macmillan Books from Palgrave Macmillan
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().