Abstract

http://ssrn.com/abstract=1557279
 
 

References (8)



 
 

Citations (19)



 


 



Questions and Answers About the Financial Crisis - Prepared for the U.S. Financial Crisis Inquiry Commission


Gary B. Gorton


Yale School of Management; National Bureau of Economic Research (NBER)

February 20, 2010


Abstract:     
All bond prices plummeted (spreads rose) during the financial crisis, not just the prices of subprime related bonds. These price declines were due to a banking panic in which institutional investors and firms refused to renew sale and repurchase agreements (repo) - short‐term, collateralized, agreements that the Fed rightly used to count as money. Collateral for repo was, to a large extent, securitized bonds. Firms were forced to sell assets as a result of the banking panic, reducing bond prices and creating losses. There is nothing mysterious or irrational about the panic. There were genuine fears about the locations of subprime risk concentrations among counterparties. This banking system (the “shadow” or “parallel” banking system) ‐ repo based on securitization ‐ is a genuine banking system, as large as the traditional, regulated and banking system. It is of critical importance to the economy because it is the funding basis for the traditional banking system. Without it, traditional banks will not lend and credit, which is essential for job creation, will not be created.

Number of Pages in PDF File: 17

working papers series


Download This Paper

Date posted: February 23, 2010 ; Last revised: March 16, 2010

Suggested Citation

Gorton, Gary B., Questions and Answers About the Financial Crisis - Prepared for the U.S. Financial Crisis Inquiry Commission (February 20, 2010). Available at SSRN: http://ssrn.com/abstract=1557279 or http://dx.doi.org/10.2139/ssrn.1557279

Contact Information

Gary B. Gorton (Contact Author)
Yale School of Management ( email )
135 Prospect Street
P.O. Box 208200
New Haven, CT 06520-8200
United States
203 432-8931 (Fax)
HOME PAGE: http://mba.yale.edu/faculty/profiles/gorton.shtml
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Feedback to SSRN


Paper statistics
Abstract Views: 5,539
Downloads: 1,847
Download Rank: 3,521
References:  8
Citations:  19

© 2014 Social Science Electronic Publishing, Inc. All Rights Reserved.  FAQ   Terms of Use   Privacy Policy   Copyright   Contact Us
This page was processed by apollo6 in 0.250 seconds