28 Pages Posted: 4 Nov 2008 Last revised: 16 Dec 2008
Date Written: November 4, 2008
This research evaluates the fundamental causes of the current financial crisis. Close financial analysis indicates that theoretical modeling based on unrealistic assumptions led to serious problems in mispricing in the massive unregulated market for credit default swaps that exploded upon catalytic rises in residential mortgage defaults. Recent academic research implies solutions to the crisis that are appraised to be far less costly than a bailout of investors who made poor financial decisions with respect to credit analysis.
Keywords: financial crisis, credit default swap, bailout, foreclosure, short sales, systematic risk, default risk, credit spread
JEL Classification: G11, G12, G13, G14
Suggested Citation: Suggested Citation
By Cullen Roche