Economics, Econometrics and Finance
3 years ago

Financial crisis caused by overconfidence and complexity in shadow banking system.

Palgrave Macmillan Books
Too Much Right Can Make a Wrong: Setting the Stage for the US Financial Crisis
Richard J. Rosen

Paper Summary

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The financial crisis in 2007 showed that the system had some big problems. One issue was with complicated financial products from the shadow banking system. These products grew a lot before the crisis. The crisis happened because investors were too confident and busy, and they were using other people's money. The crisis was made worse by a long time before it happened, a shift to the shadow banking system, more connections between financial firms, and more borrowing by some firms.