20
votes
Accepted
If I don't pay a debt, then the creditor takes my goods. Why, then, do Greek creditors not take Greece?
In general, there are three kinds of debt:
Secured debt, like a mortgage or a repurchase agreement. With a mortgage, for example, the debt is secured by a lien on the home, and if the debtor does not ...
- 6,333
6
votes
Accepted
Could debt cause inflation instead of deflation?
Yes it can.
If debt originates from the banking system, then it potentially has a side effect of money creation. Whether or not money is actually created when a bank loan is made depends on the ...
- 2,769
6
votes
What actually went wrong in the economy as described by "The Big Short"?
The problem at the bottom of the 2008 crash is that the values of multiple instruments were dramatically over estimated because the risk of default in the various underlyings was dramatically ...
- 185
6
votes
Accepted
How did the derivatives market 'collapse' in 2008?
The question is quite complex and an answer should be far beyond looking only at the structure of the derivatives, but i try my best.
The initial situation:
Between 1998 and 2006, the price of the ...
- 319
5
votes
Accepted
Is it correct to say that wealth is "destroyed" when an asset bubble bursts?
We need to distinguish two things here: the intrinsic value of the assets, and their fair value, or market value.
No matter how much the price of an asset changes on financial markets (say, stock ...
- 1,077
5
votes
What actually went wrong in the economy as described by "The Big Short"?
The answer offered by @MD-Tech is unfortunately profoundly wrong on a number of its core assertions. I will first correct these assertions (and offer references while doing so) and then very briefly ...
- 6,333
5
votes
Accepted
Authoritative Books on Subprime Mortgage Crisis
Trying to think of what's on my bookshelf... this is an incomplete list, but it should get you started.
The Financial Crisis Inquiry Commission Report is the authoritative overview of the housing ...
- 6,333
5
votes
Larry Summers on the causes of secular stagnation
French economist Jean-Baptiste Michau has published in 2018 a relatively simple model of secular stagnation:
To investigate secular stagnation, I add two features to a standard Ramsey model with ...
- 3,888
4
votes
Larry Summers on the causes of secular stagnation
I wanted to leave this as a comment but I dont have enough rep yet so I am putting this here even though it is not an answer.
The problem with the lack of investiments is due to the fact that most of ...
- 347
4
votes
Could the Troika's economic plan work for Greece?
The short answer is "No", if by "small number" we mean something no more than "five".
The two characteristics you mention are rather different: "high growth" describes a rate of evolution. Now, it ...
- 33.1k
4
votes
Accepted
Why shutdown the banks (Greece)?
The deposits that people have in the banks is a lot more than the money that the banks actually have. This is due to fractional reserve banking.
As a consequence, if everybody tries to take out ...
- 1,734
4
votes
Accepted
Currency Devaluation and the causes of the Tequila Crisis
The Mexican government has a complicated history of currency intervention, which can be read about in a detailed timeline here.
However, in 1994 the devaluation was caused by the end of government ...
- 388
4
votes
Accepted
What do economist state as evidence that "structural reform" works?
A rather positive view of structural reforms
In their recent Economic Policy Reforms 2016, Going for Growth Interim Report, the OECD reviews the main growth challenges faced by OECD and selected non-...
- 6,865
3
votes
What happens to the billions in Euros that Greece owes if it leaves the Euro
If you owe euros you have to pay in euros. If for example the British government owes euros, then they get some funds (perhaps take another loan) and in case this is in a currency different from euros ...
- 28.1k
3
votes
What analysis has been done to predict the next big financial crash?
A useful principle to have in mind here is the so called 'volatility paradox´ oft-cited by Marcus Brunnermier (Princeton prof):
The idea is as follows: a) financial institutions are in the business ...
- 2,638
3
votes
Accepted
Why recent crises all started with a housing bubble?
In a fractional reserve monetary system loans create money and loan repayments destroy money. Most bank lending in modern times is for the purpose of purchasing real estate. So the amount of money ...
- 1,052
3
votes
If I don't pay a debt, then the creditor takes my goods. Why, then, do Greek creditors not take Greece?
@dismalscience said it all. I'd add that the EU is trying to get Greece's property in two indirect ways.
First, the troika demanded Greece to privatize some of its public assets. While privatization ...
- 1,587
3
votes
Collapse of Lehman Brothers: What did they have in their books?
We do have information on this topic. I’d recommend starting with the Financial Crisis Inquiry Commission report chapter on it, and review the New York Fed article on its resolution. Detailed ...
- 6,333
3
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 ...
- 6,333
2
votes
List of EU banks that received state aid
Here is a list of banks that received state aid during the financial crisis.
- 21
2
votes
Accepted
Bond market vs stock market during crisis
Short answer:
A bond issued by a company is less risky than a share of the same company.
Longer answer:
A company is in bankruptcy if its assets are worth less than its obligations. In case of ...
- 28.1k
2
votes
Why did the hybrid Phillips Curve become flatter (as empirical data shows) after the crisis?
(1) The Phillips curve is not a structural thing, it is not surprising that the relationship between unemployment and inflation is not constant over time.
(2) There's a nice AER paper by Simon ...
- 970
2
votes
Accepted
How have central banks been injecting currency after crises since 2007?
Central banks "...inject currency into the financial system" by carrying out asset purchases---sovereign bonds/MBSs/ETFs/etc.
In practice, this is a transaction between the central bank and large ...
- 2,609
2
votes
How did the derivatives market 'collapse' in 2008?
I am not sure which is your current level of understanding so tailoring the answer seems difficult. At a very basic level, the idea is as follows.
Commercial banks and other institutions originate ...
- 540
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 ...
- 428
2
votes
Accepted
Questions about the future of macroeconomic modeling and the role of simultaneous equation systems
Is there future for DSGE?
Well, DSGE stands for dynamic stochastic general equilibrium models. You can’t really model time series appropriately without the dynamic stochastic part, and when it comes ...
- 51.4k
2
votes
Accepted
Have the deregulation measures that caused the 2007-2008 crisis been rolled back?
Actually, in the literature Great Recession itself is not attributed primarily to financial deregulation. Financial deregulation played a significant and extremely important role in the Great ...
- 51.4k
1
vote
How have central banks been injecting currency after crises since 2007?
The question touches several points, but I can try to explain the "where did the money go in the crisis" with an example from Portugal:
Through automatic stabilizers, and
due to acquisition of ...
- 2,145
1
vote
What should the Euro regulators look for and monitor to prevent a Euro crisis?
For an EU member state to joins and stays in the Eurozone (the official name of what you called the Euro Club), it is necessary to comply with the Stability and Growth Pact (which Bulgaria already ...
- 2,145
1
vote
Accepted
Episodes of Housing Crashes and Never Recovering
Maybe the case of Germany before and after WWI could provide you an example. See here. The short story is that there was a big housing shortage before the WWI, which, after the war, which was no ...
- 8,542
Only top scored, non community-wiki answers of a minimum length are eligible