Financial Crisis - Imbalance Of Risk Profiles

Slobodan Lakic

Montenegrin Journal of Economics, 2009, vol. 5, issue 9, 33-44

Abstract: Crises are typically preceded by many weak and worsened economic fundamentalities. The problems of subprime mortgage market appeared in the context of a considerable deceleration of real economic growth (real GDP). The current financial crisis has experienced further propulsion through an interaction of incentive for minimizing equity and the one for gambling, with the aim to use the growing risk. Blocking of limited liability meant transferring of losses to bank creditors or the state, whereby tax payers are certainly the primary losers. Financial liberalization weakened the barriers of financial conservatism which, according to Minsky, should prevent the speculative behaviour. The consequence is a perfectly understandable link among liberalization, financial instability and financial crises. An increase of financial integration and innovations has contributed to redirecting the attention from market illiquidity and funding to the issue insolvency. Innovations on the credit market throughout the previous two decades significantly changed the traditional model of bank lending. Apart from selling off loans and securitization, credit derivatives emerged on the credit market, as the last in a series of innovations preceding (and contributing to) the current financial crisis. Structured products in some deregulated derivatives markets represented a link in the - fully - unexplained transmission crisis mechanism, as the last stage of financialization. The final effects, potentially destructive, will reveal the essence of the "shadow" system and likely sophisticated scheme.

Date: 2009
References: Add references at CitEc
Citations:

Downloads: (external link)
http://repec.mnje.com/mje/2009/v05-n09/mje_2009_v05-n09-a10.pdf (application/pdf)
http://repec.mnje.com/mje/2009/v05-n09/mje_2009_v05-n09-a10.html (text/html)

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: https://EconPapers.repec.org/RePEc:mje:mjejnl:v:5:y:2009:i:9:p:33-44

Access Statistics for this article

Montenegrin Journal of Economics is currently edited by Veselin Draskovic

More articles in Montenegrin Journal of Economics from Economic Laboratory for Transition Research (ELIT)
Bibliographic data for series maintained by Nikola Draskovic Jelcic ().