The Next Financial Crisis

23 Pages Posted: 8 Aug 2010

See all articles by Yochanan Shachmurove

Yochanan Shachmurove

City University of New York, CUNY City College of New York - Department of Economics; The University of Pennsylvania - Department of Economics

Date Written: August 6, 2010

Abstract

The examination of U.S. crises reveals that the current financial crisis follows past patterns. An investment bubble creates excess demand for new financing instruments. During the railroad bubbles of the nineteenth century loans were issued at a pace higher than many companies could pay back. The current housing bubble originated from issuing sub-prime mortgages that assume that housing prices would only rise. The increased demand for credit induces financial innovations and instruments that circumvent existing regulations. Inevitably, the bubble bursts. The history of financial crises teaches that policy reforms and new regulations cannot prevent future financial crises.

Keywords: Financial Crises, Financial Regulations and Reforms, Banking Panics, Banking Runs, Nineteenth and Twentieth Century Crises, Bankruptcies, Federal Reserve Bank, Subprime Mortgage, Troubled Asset Relief Program (TARP), Collateralized Debt Obligations (CDO), Mortgage Backed Securities (MBO)

JEL Classification: E0, E3, E44, E5, E6, N0, N1, N2, G0, G18, G38

Suggested Citation

Shachmurove, Yochanan, The Next Financial Crisis (August 6, 2010). PIER Working Paper No. 10-027. Available at SSRN: https://ssrn.com/abstract=1654361 or http://dx.doi.org/10.2139/ssrn.1654361

Yochanan Shachmurove (Contact Author)

City University of New York, CUNY City College of New York - Department of Economics ( email )

160 Convent Avenue
New York, NY 10031
United States
212-650-6202 (Phone)

The University of Pennsylvania - Department of Economics ( email )

Ronald O. Perelman Center for Political Science
133 South 36th Street
Philadelphia, PA 19104-6297
United States
215-898-1090 (Phone)
215-573-2057 (Fax)

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