Working Paper: NBER ID: w16609
Authors: Frederic S. Mishkin
Abstract: This paper examines what transformed a significant, but relatively mild, financial disruption into a full-fledged financial crisis. It discusses why, although the Lehman Brothers bankruptcy was a key trigger for the global financial crisis, three other events were at least as important: the AIG collapse on September 16, 2008; the run on the Reserve Primary Fund on the same day; and the struggle to get the Troubled Asset Relief Plan (TARP) plan approved by Congress over the following couple of weeks. The paper then looks at the policy responses to the financial crisis to evaluate whether they helped avoid a worldwide depression. The paper ends by discussing the policy challenges raised in the aftermath of the crisis.
Keywords: financial crisis; subprime mortgage; government intervention
JEL Codes: E58; G01; G18
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Lehman Brothers bankruptcy (G33) | increased uncertainty (D89) |
| increased uncertainty (D89) | distressed selling of securities (G10) |
| distressed selling of securities (G10) | collapse in asset prices (G01) |
| collapse in asset prices (G01) | drying up of liquidity (E44) |
| Lehman Brothers bankruptcy (G33) | global crisis (G01) |
| AIG collapse (G33) | global crisis (G01) |
| run on Reserve Primary Fund (E44) | global crisis (G01) |
| struggle to pass TARP (G28) | global crisis (G01) |
| government interventions (H53) | stabilization of financial system (G28) |
| without government interventions (P19) | deeper recession or depression (E32) |