Domes9c banks borrow from foreign banks fixed exchange

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Unformatted text preview: Crisis of 2007 – 2008: Global Imbalance U.S. Personal Saving Rate 2006 2003 2000 1997 1994 1991 1988 Flow of Funds Accounts 1985 1982 1979 1976 1973 1970 1967 1964 1961 1958 1955 16 14 12 10 8 6 4 2 0 - 2 - 4 1952 % of Personal Disposable Income Na9onal Income and Product Accounts 23 The Subprime Financial Crisis of 2007 – 2008: Easy Monetary Policies by the Fed? •  The Taylor- rule implied FF rate vs. the actual FF rate Source: Taylor (2007) “Housing and Monetary Policy,” Figure 1 24 The Subprime Financial Crisis of 2007 – 2008 •  Agency problems arise –  “originate to distribute” model is subject to a principal- agent problem. –  Principal- agent problem: A moral hazard problem that occurs when the managers in control (= the agents) act in their own interest rather than in the interest of the owners (= the principals) due to different sets of incen9ves. –  Principal = investor; Agent = mortgage broker –  Commercial and investment banks (as well as ra9ng agencies) had weak incen9ves to assess the quality of 25 securi9es. The Subprime Financial Crisis of 2007 – 2008 •  Informa9o...
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This note was uploaded on 02/02/2013 for the course ECON 2035 taught by Professor Stahl during the Fall '08 term at LSU.

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