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    The Unfolding Turmoil of 2007–2008: Lessons and Responses

    Cohen, Ben; Remolona, Eli | December 2008
    Abstract
    While the unfolding financial turmoil has involved new elements, more fundamental elements have remained the same. New elements include structured credit, the originate-to-distribute business model and the tri-party repurchase agreement. The recurrence of crises reflects a basic procyclicality in the system, which is characterized by a build-up of risk-taking and leverage in good times and an abrupt withdrawal from risk and an unwinding of leverage in bad times. To deal with the adverse liquidity spiral that has characterized the current crisis, central banks have tried to strike a balance between the importance of the continued availability of market liquidity as a public good and the moral hazard that any market intervention may induce. In proposing long-term responses to the crisis, the Financial Stability Forum has focused on areas where incentives for risk-taking may be aligned more properly and areas where risk management may be made more robust. Nonetheless a recognition that the procyclicality of the system lies at the root of the crisis would suggest more aggressive countercyclical measures are needed.
    Citation
    Cohen, Ben; Remolona, Eli. 2008. The Unfolding Turmoil of 2007–2008: Lessons and Responses. © Asian Development Bank. http://hdl.handle.net/11540/3712. License: CC BY 3.0 IGO.
    Keywords
    Economic Development
    Economic Infrastructure
    Economic Policies
    Regional Economic Development
    Microfinance Programs
    Public Finance
    Local Financing
    Financial Stability
    Financial Sector Regulation
    Enterprises
    Financial aid
    Economies in transition
    Local Finance
    Local Government
    Insurance Companies
    Banks
    Social Equity
    Social responsibility of business
    Accounting
    Personal budgets
    Cost and standard of living
    Bank accounts
    Credit control
    Regulatory reform
    Banks and banking
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    Citable URI
    http://hdl.handle.net/11540/3712
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    Author
    Cohen, Ben
    Remolona, Eli
    Theme
    Economics
    Finance
     
    Copyright 2016-2021 Asian Development Bank Institute, except as explicitly marked otherwise
    Copyright 2016-2021 Asian Development Bank Institute, except as explicitly marked otherwise