Gary B. Gorton and Andrew Metrick of Yale write this superb weekend reading guide (cannot find a free edition) on the crisis.
In the paper they summarise 16 other papers which touch on various aspects crisis (I just pointed to a paper which summarised books on the crisis).
All economists should be conversant with “what happened?” during the financial crisis of 2007-2009. We select and summarize 16 documents, including academic papers and reports from regulatory and international agencies. This reading list covers the key facts and mechanisms in the build-up of risk, the panics in short-term-debt markets, the policy reactions, and the real effects of the financial crisis.
In true Gorton style (as hardly read stuff from Metrick), it is a super crisp reading on the crisis. Gorton excels in looking at really micro issues in the financial markets and connects things like repo, asset backed commercial paper etc really well.
The 16 papers he covers are on following themese:
- Overview and Timeline of the Crisis
- Historical Background
- The Crisis Build‐Up
- The Panics (this is most interesting aspect from Gorton papers)
- Policy Responses
- Real Effects of the Financial Crisis
Their conclusion after reading various papers is:
The financial crisis of 2007‐2009 was perhaps the most important economic event since the Great Depression. All professional economists need a working knowledge of the key details of this crisis. This paper summarizes these details using 16 papers, reports, and other documents. From these documents, a narrative emerges that is very similar to historical crises, while cloaked in institutional detail novel to this century.
One strong similarity to history comes in the acceleration of system‐wide leverage just before the crisis, the strongest predictor of crises in the past two centuries. Furthermore, the recent crisis was preceded by rapid increases in housing prices, also a feature of all major crises since World War II. At this macro level, the pattern (but not the scale) of our crisis is very ordinary.
The crisis was exacerbated by panics in the banking system, where various types of short‐term debt suddenly became subject to runs. This, also, was a typical part of historical crises. The novelty here was in the location of runs, which took place mostly in the newly evolving “shadow banking” system, including money‐market mutual funds, commercial paper, securitized bonds, and repurchase agreements. This new source of systemic vulnerability came as a surprise to policymakers and economists, and some knowledge of its details is necessary for understanding the contagion that eventually spread to the real economy.
This is a neat way of organising your thoughts on financial crisis. Historically, most crisis have similar impacts on macroeconomy. Hence history repeats. However, players etc responsible/effected by the crisis could be different or microeconomics could be different. Hence history does not repeat but rhymes.
Superb as always… You get to know about 16 papers as well…
