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The blind monks and the elephant : contrasting narratives of financial crisis

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Miller, Marcus, Zhang, Lei and Rastapana, Songklod (2018) The blind monks and the elephant : contrasting narratives of financial crisis. The Manchester School, 86 (S1). doi:10.1111/manc.12236

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Official URL: https://doi.org/10.1111/manc.12236

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Abstract

Three persuasive narratives of the US subprime crisis are explored with reference both to theory and to emergency acts of public policy undertaken. First the role of pecuniary externalities that amplify any shocks to the quality of risk-assets held by Investment Banks and others. Second is adverse selection in marketing these assets; and third the role of financial panic in making investment-banking disaster-prone. How relevant these differing perspectives proved is attested by the nature of state support and by subsequent findings in courts of law.

As Chair of the US Federal Reserve, Janet Yellen argued that vulnerabilities within the US financial system in the mid-2000s were “numerous and familiar from past financial panics”. That the varied threats to stability featuring in these narratives should be complements and not substitutes is of more than technical interest: it helps to explain why the US financial system was so exposed to radical failure.

Item Type: Journal Article
Subjects: H Social Sciences > HB Economic Theory
H Social Sciences > HC Economic History and Conditions
Divisions: Faculty of Social Sciences > Economics
Library of Congress Subject Headings (LCSH): Financial crises, Finance -- Government policy, Efficient market theory, Information asymmetry, Liquidity (Economics), Debtor and creditor
Journal or Publication Title: The Manchester School
Publisher: Wiley-Blackwell Publishing Ltd.
ISSN: 1463-6786
Official Date: September 2018
Dates:
DateEvent
September 2018Published
29 August 2018Available
26 March 2018Accepted
Volume: 86
Number: S1
DOI: 10.1111/manc.12236
Status: Peer Reviewed
Publication Status: Published
Reuse Statement (publisher, data, author rights): This is the peer reviewed version of the following article: Miller, M. , Rastapana, S. and Zhang, L. (2018), The Blind Monks and the Elephant: Contrasting Narratives of Financial Crisis. The Manchester School, 86: 83-109. doi:10.1111/manc.12236, which has been published in final form at https://doi.org/10.1111/manc.12236. This article may be used for non-commercial purposes in accordance with Wiley Terms and Conditions for Use of Self-Archived Versions.
Access rights to Published version: Restricted or Subscription Access
RIOXX Funder/Project Grant:
Project/Grant IDRIOXX Funder NameFunder ID
71742004[NSFC] National Natural Science Foundation of Chinahttp://dx.doi.org/10.13039/501100001809
71673194[NSFC] National Natural Science Foundation of Chinahttp://dx.doi.org/10.13039/501100001809
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