The Blind Monks and the Elephant: Contrasting Narratives of Financial Crisis

Marcus Miller, Songklod Rastapana and Lei Zhang

Manchester School, 2018, vol. 86, issue S1, 83-109

Abstract: We explore three persuasive narratives of the US subprime crisis. First the role played by pecuniary externalities in amplifying shocks to the quality of risk‐assets held by Investment Banks; second is adverse selection in marketing these assets; and third is financial panic. Their relevance is attested by the emergency support provided by the US Federal Reserve Bank and Treasury; and by subsequent findings in courts of law. While these contrasting narratives illuminate different aspects of the crisis, we conclude it was because they all had a part to play that the US financial system was so exposed to radical failure.

Date: 2018
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