Monday, November 28, 2016

Gary Gorton, Harald Uhlig, and the Great Crisis

Gary Gorton has made clear that the financial crisis of 2007 was in essence a traditional banking panic, not unlike those of the ninetheeth century.  A key corollary is that the root cause of the Panic of 2007 can't be something relatively new, like "Too Big to Fail".  (See this.)  Lots of people blame residential mortgage-backed securities (RMBS's), but they're also too new.  Interestingly, in new work Juan Ospina and Harald Uhlig examine RBMS's directly.  Sure enough, and contrary to popular impression, they performed quite well through the crisis.

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