The Micro- and Macroeconomic Causes of the Financial Crisis

Bachelor Thesis , 2010 , 29 Pages , Grade: 1,3

Business economics - Investment and Finance

The US subprime mortgage crisis that broke out in august 2007 was triggered by mortgage delinquencies in the US and has escalated into a global financial crisis. Investor confidence sagged off, and Knightian uncertainty emerged, consequently risk premia increased and liquidity was withdrawn from interbank and credit markets. This financial disturbance and the bankruptcies of some banks and near banks (for example insurance companies, hedge funds) triggered contagiously waves of violent collapses in the financial system. The current financial crisis is adjusting the global growth cycle that was still robust over the past few years, plunging the whole world into the greatest economic crisis since 1929/30. In the following the micro- and macroeconomic causes of this financial crisis will be outlined. Moreover structural and systemic causes, i.e. global imbalances and safe asset imbalances, will be discussed and highlighted in the final synthesis.

Inhaltsverzeichnis (Table of Contents)

• Introduction
• Microeconomic Causes of the Financial Crisis
  • Credit User Variable
  • Financial Intermediate Variable
  • Credit Derivative Variable
  • Rating Agency Variable
• Macroeconomic Causes of the Financial Crisis
  • Regulator Variable
  • Monetary Policy Variable
    • Monetary Transmissions and the Monetary Policy Variable
    • International Financial System and the Monetary Policy Variable
    • Asset Inflation and the Monetary Policy Variable
  • Fiscal Policy Variable
  • Global Imbalances Variable
• Safe Asset Imbalances versus Global Imbalances

Zielsetzung und Themenschwerpunkte (Objectives and Key Themes)

This paper aims to provide a comprehensive analysis of the micro- and macroeconomic factors that contributed to the global financial crisis of 2007-2008. The paper will focus on the role of subprime mortgages, credit derivatives, and global imbalances in triggering and exacerbating the crisis.

• The role of credit user behavior and lending practices in the development of the subprime mortgage bubble.
• The impact of financial intermediation and securitization on the spread of risk and the creation of complex financial instruments.
• The influence of regulatory frameworks and monetary policy on the financial system and the potential for systemic risk.
• The interconnectedness of global financial markets and the role of international imbalances in the crisis.
• The interplay of microeconomic and macroeconomic factors in driving the financial crisis.

Zusammenfassung der Kapitel (Chapter Summaries)

The introduction provides an overview of the US subprime mortgage crisis and its escalation into a global financial crisis. The paper highlights the impact of the crisis on investor confidence, liquidity, and global growth.

Chapter 2 explores the microeconomic causes of the financial crisis, focusing on the role of the credit user, financial intermediaries, credit derivatives, and rating agencies. The chapter analyzes the factors that contributed to the development of the subprime mortgage bubble, including low interest rates, poor lending standards, and the originate-and-distribute model.

Chapter 3 delves into the macroeconomic causes of the financial crisis, examining the impact of regulatory frameworks, monetary policy, fiscal policy, and global imbalances. The chapter discusses the role of monetary transmissions, international financial systems, and asset inflation in the crisis.

Chapter 4 explores the relationship between safe asset imbalances and global imbalances, analyzing their role in the financial crisis.

Schlüsselwörter (Keywords)

Subprime mortgages, credit derivatives, securitization, global imbalances, financial intermediation, regulatory frameworks, monetary policy, asset inflation, systemic risk, Knightian uncertainty, originate-and-distribute model, moral hazard, prisoner's dilemma.

• College: University of Frankfurt (Main) (Wirtschaftswissenschaften)
• Course: Causes and Consequences of Financial Crises
• Grade: 1,3
• Author: Josué Manuel Quintana Díaz (Author)
• Publication Year: 2010
• Pages: 29
• Catalog Number: V152848
• ISBN (eBook): 9783668806269
• Language: English
• Tags: Microeconomic causes, Macroeconomic Causes, Financial Crisis, Global Imbalances, Causes of the Financial Crisis, subprime crisis, Asset inflation, Monetary policy