Houses, Banks, and Financial Markets: Why the Crisis this Time?

38 Pages Posted: 22 Jan 2009 Last revised: 25 Jan 2010

See all articles by Jon A. Garfinkel

Jon A. Garfinkel

University of Iowa - Tippie College of Business

Jarjisu Sa-Aadu

University of Iowa - Department of Finance

Multiple version iconThere are 2 versions of this paper

Date Written: July 24, 2009

Abstract

The current global economic and financial crises are alarming in both severity and length. We study the anatomy of the collapse by comparing the current precipitant (housing crisis) with the previous U.S. housing crisis of the early 1990s. Our analysis suggests that the greater severity of this episode is driven by several factors: default proclivity (to typical triggers) and bank lending retrenchment are different across the previous and current episodes. Most importantly however, we document different linkages between the housing sector, the banking sector and stock market across the two episodes. We conclude that the duration of the current episode is likely to significantly exceed the duration of the prior episode.

Keywords: U.S. housing markets, Mortgage default proclivity, Bank lending behavior, Asset crashes

JEL Classification: G12, G21, R31

Suggested Citation

Garfinkel, Jon A. and Sa-Aadu, Jarjisu, Houses, Banks, and Financial Markets: Why the Crisis this Time? (July 24, 2009). Available at SSRN: https://ssrn.com/abstract=1331294 or http://dx.doi.org/10.2139/ssrn.1331294

Jon A. Garfinkel (Contact Author)

University of Iowa - Tippie College of Business ( email )

108 PBB
Iowa City, IA 52242-1000
United States
319-335-0943 (Phone)
319-335-3690 (Fax)

HOME PAGE: http://www.biz.uiowa.edu/faculty/jgarfinkel

Jarjisu Sa-Aadu

University of Iowa - Department of Finance ( email )

Iowa City, IA 52242-1000
United States
319-335-0929 (Phone)
319-335-3690 (Fax)

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