Leverage? What Leverage? A Deep Dive into the U.S. Flow of Funds in Search of Clues to the Global Crisis

31 Pages Posted: 1 Nov 2012

See all articles by Ashok Vir Bhatia

Ashok Vir Bhatia

affiliation not provided to SSRN

Tamim Bayoumi

International Monetary Fund (IMF); Centre for Economic Policy Research (CEPR)

Date Written: June 2012

Abstract

This paper questions the view that leverage should have forewarned us of the global financial crisis of 2007-09, pointing to several gearing indicators that were neither useful portents of the onset of the crisis nor of its ferocity. Instead it shows, first, that the use of ill-suited collateral in the secured funding operations of U.S.-based investment banks was the fatal link between the collapse of structured finance and the global malfunction of funding markets that turbocharged the downdraft; and, second, that this insight (and others) can be decrypted from the Flow of Funds Accounts of the United States.

Keywords: Leverage, Securitization, Collateral, Investment Banking, Banks, Borrowing, Consumer Credit, Credit Expansion, Financial Instruments, Financial Sector, Money And Interest Rates, Financial Institutions And Services

Suggested Citation

Bhatia, Ashok Vir and Bayoumi, Tamim, Leverage? What Leverage? A Deep Dive into the U.S. Flow of Funds in Search of Clues to the Global Crisis (June 2012). IMF Working Paper No. 12/162. Available at SSRN: https://ssrn.com/abstract=2169707

Ashok Vir Bhatia (Contact Author)

affiliation not provided to SSRN

No Address Available

Tamim Bayoumi

International Monetary Fund (IMF) ( email )

700 19th Street NW
Washington, DC 20431
United States
202-623-6333 (Phone)
202-623-4795 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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