The recent credit crisis in the United States ushered in a new era
of uncertainty. In some ways it was just another bubble in a long
line of fi nancial manias. Like any other bubble, it was born out of
an extended period of easy money that fueled prosperity, engendered
speculation, and ended in a spectacular crash. In some very
important ways, however, the lingering impacts are different than
the bubbles of recent memory.
When I first started writing about credit scores more than a decade ago, few
people knew what these three-digit numbers were or how they worked.
Today most people have at least a vague understanding that credit scores
are important. But they often don’t realize how important—until they get
turned down for a loan or an apartment, or wind up paying more interest or
higher insurance premiums than they expected.
The ﬁrst time a money market fund broke the buck was in 1994,
when the Denver-based Community Banker’s U.S. GovernmentMoney
Market Fund reported aNAVof $0.96. It had themisfortune of owning
securities that fell sharply in value during the rapid rise in interest rates
that year. Because this was a small fund held by a small number of
institutional shareholders, the impact was limited.
It wasn’t until the credit crisis of 2008 hit that a fund broke the
buck in a dramatic way. This was the Reserve Primary Fund—the ﬁrst
money market fund in the United States.
It is highly likely that by augmenting the amount of funding available to banks,
securitization activity had a significant and positive impact on credit growth during the years
prior to the credit crisis (Loutskina and Strahan, 2009, Altunbas et al., 2009). In a number of
countries experiencing a period credit growth, securitization activity probably strengthened the
feedback effect between increases in housing prices and the credit expansion.
The current financial crisis occurred after a long and remarkable period of growth and
innovation in our financial markets. New financial instruments allowed credit risks to be
spread widely, enabling investors to diversify their portfolios in new ways and enabling
banks to shed exposures that had once stayed on their balance sheets. Through
securitization, mortgages and other loans could be aggregated with similar loans and sold
in tranches to a large and diverse pool of new investors with different risk preferences.
This event is most important for the Social Network of Latin America and
the Caribbean. The network has allowed La Red Social to cooperate among
various countries in the struggle against poverty. It recently also completed
an important study of the potentials and the limitations of social funds.
Social funds, created as instruments of the social policy pursued by each
country, were designed to mobilize resources rapidly for the financing of
social action programs.
If you are not currently a citizen of the United States or lawfully within the
country, you are still allowed to access civil courts to petition for protective
relief. Every abused person, regardless of citizenship, is entitled to apply for
a protection order. Non-citizens should consult an attorney knowledgeable
in immigration law before seeking a protection order from the courts.
Legal issues related to immigration status may arise during issuance or
On September 15, 2008, Lehman Brothers, the fourth-largest U.S. investment
bank, filed for bankruptcy, marking the largest bankruptcy in U.S. history and
the burst of the U.S. subprime mortgage crisis. Concerns about the soundness of
U.S. credit and financial markets led to tightened global credit markets around
the world. Spreads skyrocketed. International trade plummeted by double digits,
as figure O.1 illustrates. Banks reportedly could not meet customer demand to
finance international trade operations, leaving a trade finance “gap” estimated at
around $25 billion.
The authors study the effect of financial crises on trade credit in a sample of 890 firms in six emerging economies. They find that although provision of trade credit increases right after the crisis, it consequently collapses in the following months and years. The authors observe that firms with weaker financial position (for example, high pre-crisis level of short-term debt and low cash stocks and cash flows) are more likely to reduce trade credit provided to their customers.
This paper considers the main elements of the standard pattern of ﬁ nancial liberalization that
has become widely prevalent in developing countries. The theoretical arguments in favour of
such liberalization are considered and critiqued, and the political economy of such measures
is discussed. The problems for developing countries, with respect to ﬁ nancial fragility and the
greater propensity to crisis, as well as the negative deﬂ ationary and developmental effects, are
Given the unprecedented—by recent standards—financial crisis
that has devastated the world financial system and extended its
reach into a number of other sectors, political risk insurance has
become even more relevant. At the same time, questions remain as
to whether PRI really covers those risks that investors need covered
The economies of different countries have been affected with different degrees of intensity
according to their exposure to some of the main drivers of the financial crisis.
which has been largely blamed as one of the main contributors to the financial meltdown, is an
important example in place. While in some countries, securitization played a very large role, in
other nations the resort to activities in these markets was insignificant from a macroeconomic
In recent years, Japan’s major corporations have
increasingly relied on the corporate bond market as a
source of debt finance. From 1996 to 1998, the issuance
of corporate bonds increased more than 46 percent, from
30.8 trillion yen to about 45 trillion yen (Table 1).1 At the
same time, loans from Japan’s banking sector decreased
about 17 trillion yen. As the corporate bond market grew,
the spreads between the yields on Japanese corporate and
government bonds widened dramatically.
While the magnitude of differences in credit scores was very substantial, the impact
of credit scores on pricing and availability varies among companies and is not directly
examined in this study. The impact of scores on premium levels will be directly addressed in
studies expected to be completed by late 2004.
Missouri statue prohibits sole reliance on credit scoring to determine whether to
issue a policy. However, there are no limits on price increases that can be imposed due to
credit scores, so...
Our study constitutes a basis for further analyses of the equilibrium level of credit
in the economy and investigations of ¯nancial stability. In order to prove this, we note
that the econometric analysis in this article have been replicated and extended by Serwa
(2011) to build a model identifying both normal and boom regimes in the credit market.
In turn, Rubaszek (2011) have calibrated a version of the model including housing to
data on the banking sector in Poland. His results suggest that incorporating housing
in the model signi¯cantly increases the volume of credit in the economy. ...
The crisis has shown that securitization is heavily dependent on markets’ perceptions and could
be subject to sudden bouts of illiquidity generated from investors’ concerns. Namely the
consequences of the increased participation in bank funding by financial markets’ investors and
the large increases in securitized assets, can led to acute liquidity crises.
An important feature in many countries is the role of securitization in the lending and housing
prices boom and burst. At the macroeconomic level, the dynamics of the relationship between
lending, housing prices and securitization have been largely unexplored although a rising
interest has recently emerged with the financial crisis.
In the United States, insurance regulators require bonds and preferred stocks to be reported
in statutory financial statements in one of six National Association of Insurance
Commissioners (NAIC) designations categories that denote credit quality. If an accepted
rating organisation (ARO) has rated the security, the security is not required to be filed with
the NAIC’s Securities Valuation Office (SVO). Rather, the ARO rating is used to map the
security to one of the six NAIC designation categories.
This paper makes a case that the global imbalances of the 2000s and the recent global
financial crisis are intimately connected. Both have their origins in economic policies
followed in a number of countries in the 2000s and in distortions that influenced the
transmission of these policies through U.S. and ultimately through global financial
markets. In the U.S., the interaction among the Fed’s monetary stance, global real interest
rates, credit market distortions, and financial innovation created the toxic mix of
conditions making the U.S.
Two features stand out. First, leverage is procyclical.
Leverage increases when balance sheets expand.
Conversely, leverage falls when balance sheets
contract. Thus, leverage tracks the waxing and
waning of balance sheets in a way that ampliﬁ es
the ﬁ nancial cycle. Although “procyclical leverage”
is not a term that the banks themselves would use
in describing how they behave, this is in fact what
they are doing.
Second, there is a striking contrast between the
distress in 1998Q4 associated with the LTCM crisis
and the credit crisis of the summer of 2007.