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25 votes
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Why did banks give out subprime mortgages leading up to the 2007 financial crisis to begin with?

If you want all details read this excellent Brookings report on the Origins of the Financial Crisis by Baily et al. Its an excellent source on this topic and it is not too technical for laymen to ...
1muflon1's user avatar
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15 votes

Why did banks give out subprime mortgages leading up to the 2007 financial crisis to begin with?

@1muflon1's answer is correct, but only tells half of the story. The other half of the story, that Brookings studiously avoids mentioning, because it conflicts with their values, is that lenders were ...
Eugene's user avatar
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8 votes
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The Economics of Coronavirus

With the right keywords (and author searches) from earlier papers, I actually found some academic output already; this might not be peer-reviewed yet, i.e. preprints: McKibbin and Fernando (2 March ...
against very long user names's user avatar
4 votes

Was the 2008 financial crisis caused more by the US subprime mortgage lending or more by an international energy and oil pricing crisis?

It's worth differentiating between the financial crisis of 2007-2009, and the recession that began in December 2007. The financial crisis was indeed caused by a run on wholesale funding that was ...
dismalscience's user avatar
4 votes
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Country specific economic recession/financial crisis data?

Several articles use data sets on this issue but I am not sure that all the data sets are freely available. Valencia & Laeven (2012) use the IMF country reports to create their data set. It ...
Grada Gukovic's user avatar
4 votes

Statistics of links between public debt and recessions

Yes actually many people bothered to study this link. To be more specific the studies are between debt-to-GDP and economic growth (but recession is defined as negative economic growth - more narrowly ...
1muflon1's user avatar
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3 votes
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What caused the sharp increase in subprime-mortgages moving to punishingly high-rates in 2007, (which lead to defaults and a financial crisis)

One issue is that it is an attempt to fact-check a movie. A movie has an incentive to give a simplistic explanation of the crisis. There are probably hundreds of academic papers on the crisis. The ...
Brian Romanchuk's user avatar
3 votes
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What are the effects of liquidity crisis?

Lack of liquidity depresses the output and can lead to recessions because it forces otherwise healthy firms to go bankrupt and it also undermines the financial infrastructure of an economy. I think ...
1muflon1's user avatar
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3 votes

Reason for Economic Slowdown in Western Nations

The primary reason is that it is easier to catch up than it is to forge ahead. India and China have lower GDPs per capita, so they can copy what other countries have done and gain. But the United ...
Brythan's user avatar
  • 1,182
2 votes

Inflationary recession vs Deflationary recession

I would like to answer this question by sort of describing what each would start to look like. In an area where the population is aging, the resulting decline in incomes and spending tend to be ...
Daniel's user avatar
  • 476
2 votes

Inflationary recession vs Deflationary recession

Deflationary recession refers to a recession in which prices are falling. An example was the Great Depression. Below you have a graph of the yearly rate of change in CPI. A negative number means a ...
luchonacho's user avatar
  • 8,591
2 votes

What activity or event(s) marks the point at which an economic "bubble" burst?

An Economic bubble "bursts" when we see a sudden drop in price (as you have said in your question). Wikipedia has an appropriate comment on the issue of bubbles being: "...bubbles are often ...
EconJohn's user avatar
  • 8,407
2 votes

What activity or event(s) marks the point at which an economic "bubble" burst?

An economic "bubble" bursts when the buyers in the market deem the good or service to be overpriced. At a certain point, the price of whatever is causing the bubble will reach a certain "threshold ...
Mathematician's user avatar
2 votes

Why war can remit the economic crisis?

It is not war itself that helps to counteract economic crises, but rather the increased spending needed to support the war. In terms of the evidence to support this claim, Lee Hudson Teslik from the ...
Jack Block's user avatar
2 votes
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Was there a drop in liquidity in the corporate bond market during the Global Financial Crisis?

"...if such a...cycle exists..."---i.e. in economic language, whether liquidity and demand are endogenous to each other. Yes, of course they are. Liquidity (or illiquidity) of any asset can ...
Michael's user avatar
  • 2,619
2 votes

Financial Crisis text book recommendation

One of my favorites in this dimension is "This Time Is Different" by Reinhart and Rogoff. Both are respected scholars. The title already suggests what they aim at. Covering sixty-six ...
Bayesian's user avatar
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2 votes

Is quantitative easing part of the ECB's and Fed's mandates?

It’s a means to an end, and to the mandate that these institutions imposed on themselves. We could also call it an “unofficial” mandate since politicians would likely put pressure on them in indirect ...
Simeon Ikudabo's user avatar
2 votes

Was the financial crash of 2008 caused by top graduates of the American Ivy Leagues working at wall street banks?

Question 1: Was the financial crash of 2008 caused by top graduates of the American Ivy Leagues working at wall street banks? No for several reasons. First financial crises are unavoidable, no ...
1muflon1's user avatar
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1 vote

Why did banks give out subprime mortgages leading up to the 2007 financial crisis to begin with?

Quick answer: the banks who created the mortgages got paid for creating them (origination fees) then offloaded the risky loans to someone else within 30-60 days. Why there was a downstream market for ...
JWally's user avatar
  • 119
1 vote

Financial Crisis text book recommendation

My favorite, and this is my main area of expertise, so I've read many, is Gary Gorton's Misunderstanding Financial Crises: Why We Don't See Them Coming. It's focused on the history in the United ...
dismalscience's user avatar
1 vote

Why is the multiplicator effect considered stronger if money is handed out to poor people rather than the well off?

Isn't handouts to rich people a more efficient way to "kickstart" an economy, through the multiplier effect and other means, in recession compared to if the handout targets poor people? No. ...
1muflon1's user avatar
  • 56.9k
1 vote

Why is the multiplicator effect considered stronger if money is handed out to poor people rather than the well off?

I’m going to answer from what I know from Intro to Macro. This model may not be too accurate in real life but hopefully my post is somewhat useful. A common function to model consumption is $C = C_0 +...
Nicolas Torres's user avatar
1 vote
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Is there a research paper which analyzes the economic crisis 2008 by quantifiable critera?

I would suggest to have a look at Ohanian (2010): The Economic Crisis from a Neoclassical Perspective at https://pubs.aeaweb.org/doi/pdfplus/10.1257/jep.24.4.45 It's an accessible application of ...
jpfeifer's user avatar
  • 529
1 vote

Reason for Economic Slowdown in Western Nations

Let us put these terms like GDP, GNP and other stated economic indicators aside for a moment. Saying that nations have "developed" is rather a very easy way to address the question of why growth rates ...
Kir'Shara's user avatar
  • 104
1 vote

Was there a drop in liquidity in the corporate bond market during the Global Financial Crisis?

Liquidity is a vague term, and it is more useful to talk about other factors that are measurable. However, the theory that a lack of liquidity alone causes investors to shy away runs against the ...
Brian Romanchuk's user avatar
1 vote
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Macroeconomics differences of 2008 financial crisis and 2020 economic crisis

There are a lot of differences between the two crises + how these differences manifest in the stock market. First, on the point of the stock market- it's "kinda" an indicator of the overall ...
C. Kang's user avatar
  • 166
1 vote

Why could boasting oil during the current drop in oil demand be good for Saudi Arabia?

The country's funding costs are very low in comparison: at an average of 25 per barrel (in comparison: Russia is funding for 45, the fracking, which is mainly carried out in the United States, ...
Albrecht Hügli's user avatar
1 vote
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The financial crisis in 2008 explained in my own words

Fantastic questions! I might only take 1-2 of them on, though. Paraphrased below. 1. How could a bank fail from just one bad product (MBS), shouldn't they be more diversified? So: substantively, ...
David's user avatar
  • 328
1 vote

I bought a house on a mortgage. If its price changes later, how will it affect the ease of repaying the loan?

It is because of refinancing. Banks charge interest to cover costs. Among these costs are the costs of delinquent loans. Suppose your bank has lent you X dollars, and your collateral is a house ...
Giskard's user avatar
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