Lessons from the Crisis
Kenneth E. Scott
Stanford Law School
November 10, 2009
Stanford Law and Economics Olin Working Paper No. 385
A lot happened even before the perceived beginning of this crisis in 2007, so although the events are recent, I will give an overview from a US perspective of the period from 2001 to date, in our search for the lessons to be learned. Much of it is probably familiar, but worth revisiting.
I will break this necessarily simplified account into 3 stages: First, a look at the key factors that led to the increasing riskiness of US home mortgages; second, how those risks were transmitted as securities from US housing lenders to institutional investors around the globe; and third, how those risks led to huge losses and created a credit crunch that moved the impact from the financial economy to the real economy and produced a severe recession. Then we will have a factual foundation for deriving the lessons that ought to be taken away from this very expensive experience.
Number of Pages in PDF File: 28
Keywords: crisis, financial crisis, economy, securities, investors, credit crunch
Date posted: November 10, 2009 ; Last revised: November 19, 2009