The end of a great illusion: Credit crunch and liquidity meltdown
This paper argues that the credit crunch is the result of a particular problem in the world financial system, that is, of the phenomenon of 'liquidity illusion.' At the heart of this still poorly under-stood phenomenon lies the spiral of financial innovation and its effects on systemic liq...
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Copenhagen: Danish Institute for International Studies (DIIS)
2008
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fttriple:oai:gotriple.eu:oai:econstor.eu:10419/44664 2023-05-15T17:33:04+02:00 The end of a great illusion: Credit crunch and liquidity meltdown Nesvetailova, Anastasia 2008-01-01 http://hdl.handle.net/10419/44664 en eng Copenhagen: Danish Institute for International Studies (DIIS) urn:isbn:978-87-7605-293-5 gbv-ppn:585743800 http://hdl.handle.net/10419/44664 other ddc:330 Finanzmarktkrise Kreditgeschäft Liquiditätspräferenz Kapitalmobilität Internationaler Finanzmarkt Welt psy eco Journal Article https://vocabularies.coar-repositories.org/resource_types/c_6501/ 2008 fttriple 2023-01-22T18:59:08Z This paper argues that the credit crunch is the result of a particular problem in the world financial system, that is, of the phenomenon of 'liquidity illusion.' At the heart of this still poorly under-stood phenomenon lies the spiral of financial innovation and its effects on systemic liquidity. I examine the political-economic mechanisms that had sustained the illusion of liquidity during the boom years, and the mechanisms which contributed to its evaporation during the ongoing crisis. My analysis demonstrates that that while increased investment inflows have been one of the factors behind the North Atlantic credit boom of 2003-2007, the boom - including housing and securitization bubbles - has disguised the fact that the financial system in Anglo Saxon econ-omies has become progressively illiquid. Drawing on the scholarship of Hyman Minsky, I identify three pillars of the liquidity illusion - Ponzi finance; collective thinking by investors; and the credibility function performed by the credit rating agencies - and examine their role in the un-ravelling of the global liquidity illusion. Article in Journal/Newspaper North Atlantic Unknown |
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English |
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ddc:330 Finanzmarktkrise Kreditgeschäft Liquiditätspräferenz Kapitalmobilität Internationaler Finanzmarkt Welt psy eco |
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ddc:330 Finanzmarktkrise Kreditgeschäft Liquiditätspräferenz Kapitalmobilität Internationaler Finanzmarkt Welt psy eco Nesvetailova, Anastasia The end of a great illusion: Credit crunch and liquidity meltdown |
topic_facet |
ddc:330 Finanzmarktkrise Kreditgeschäft Liquiditätspräferenz Kapitalmobilität Internationaler Finanzmarkt Welt psy eco |
description |
This paper argues that the credit crunch is the result of a particular problem in the world financial system, that is, of the phenomenon of 'liquidity illusion.' At the heart of this still poorly under-stood phenomenon lies the spiral of financial innovation and its effects on systemic liquidity. I examine the political-economic mechanisms that had sustained the illusion of liquidity during the boom years, and the mechanisms which contributed to its evaporation during the ongoing crisis. My analysis demonstrates that that while increased investment inflows have been one of the factors behind the North Atlantic credit boom of 2003-2007, the boom - including housing and securitization bubbles - has disguised the fact that the financial system in Anglo Saxon econ-omies has become progressively illiquid. Drawing on the scholarship of Hyman Minsky, I identify three pillars of the liquidity illusion - Ponzi finance; collective thinking by investors; and the credibility function performed by the credit rating agencies - and examine their role in the un-ravelling of the global liquidity illusion. |
format |
Article in Journal/Newspaper |
author |
Nesvetailova, Anastasia |
author_facet |
Nesvetailova, Anastasia |
author_sort |
Nesvetailova, Anastasia |
title |
The end of a great illusion: Credit crunch and liquidity meltdown |
title_short |
The end of a great illusion: Credit crunch and liquidity meltdown |
title_full |
The end of a great illusion: Credit crunch and liquidity meltdown |
title_fullStr |
The end of a great illusion: Credit crunch and liquidity meltdown |
title_full_unstemmed |
The end of a great illusion: Credit crunch and liquidity meltdown |
title_sort |
end of a great illusion: credit crunch and liquidity meltdown |
publisher |
Copenhagen: Danish Institute for International Studies (DIIS) |
publishDate |
2008 |
url |
http://hdl.handle.net/10419/44664 |
genre |
North Atlantic |
genre_facet |
North Atlantic |
op_relation |
urn:isbn:978-87-7605-293-5 gbv-ppn:585743800 http://hdl.handle.net/10419/44664 |
op_rights |
other |
_version_ |
1766131455339003904 |