Over the Cliff: From the Subprime to the Global Financial Crisis

Journal of Economic Perspectives, Vol. 25, No. 1, pp. 49-70, 2011

22 Pages Posted: 27 Oct 2011

See all articles by Frederic S. Mishkin

Frederic S. Mishkin

Columbia Business School - Finance and Economics; National Bureau of Economic Research (NBER)

Multiple version iconThere are 2 versions of this paper

Date Written: 2011

Abstract

The financial crisis of 2007 to 2009 can be divided into two distinct phases. The first and more limited phase from August 2007 to August 2008 stemmed from losses in one relatively small segment of the U.S. financial system — namely, subprime residential mortgages. Despite this disruption to financial markets, real GDP in the United States continued to rise into the second quarter of 2008, and forecasters were predicting only a mild recession. In mid-September 2008, however, the financial crisis entered a far more virulent phase. In rapid succession, the investment bank Lehman Brothers entered bankruptcy on September 15, 2008; the insurance firm AIG collapsed on September 16, 2008; there was a run on the Reserve Primary Fund money market fund on the same day; and the highly publicized struggle to pass the Troubled Asset Relief Program (TARP) began. How did something that appeared in mid-2008 to be a significant but fairly mild financial disruption transform into a full-fledged global financial crisis? What caused this transformation? Did the government responses to the global financial crisis help avoid a worldwide depression? What challenges do these government interventions raise for the world financial system and the economy going forward?

Suggested Citation

Mishkin, Frederic S., Over the Cliff: From the Subprime to the Global Financial Crisis (2011). Journal of Economic Perspectives, Vol. 25, No. 1, pp. 49-70, 2011, Available at SSRN: https://ssrn.com/abstract=1949310

Frederic S. Mishkin (Contact Author)

Columbia Business School - Finance and Economics ( email )

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