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Stages of the Ongoing Global Financial Crisis: Is There a Wandering Asset-Price Bubble?

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  • Lucjan T. Orlowski

Abstract

This study identifies five distinctive stages of the current global financial crisis: the meltdown of the subprime mortgage market, spillovers into broader credit market, the liquidity crisis epitomized by the fallout of Northern Rock, Bear Stearns with contagion effects on other financial institutions, the commodity price bubble, and the ultimate demise of investment banking in the U.S. Monetary policy responses aimed at stabilizing financial markets are proposed. The study argues that the severity of the crisis is influenced strongly by changeable allocations of global savings, which lead to over-pricing of varied types of assets. The study calls such process a "wandering asset-price bubble". Unstable allocations have elevated market, credit and liquidity risks. Since its original outbreak induced by the demise of the subprime mortgage market and the mortgage-backed securities in the U.S., the crisis has reverberated across other credit areas, structured financial products and global financial institutions.

Suggested Citation

  • Lucjan T. Orlowski, 2008. "Stages of the Ongoing Global Financial Crisis: Is There a Wandering Asset-Price Bubble?," CASE Network Studies and Analyses 0372, CASE-Center for Social and Economic Research.
    • Handle: RePEc:sec:cnstan:0372
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    Cited by:

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    3. Lucjan T. Orlowski, 2021. "The 2020 Pandemic: Economic repercussions and policy responses," Review of Financial Economics, John Wiley & Sons, vol. 39(1), pages 20-26, January.
    4. Lucjan T. Orlowski, 2012. "Financial crisis and extreme market risks: Evidence from Europe," Review of Financial Economics, John Wiley & Sons, vol. 21(3), pages 120-130, September.
    5. Di Carlo, Anastasia, 2010. "The Private Equity market in Europe. Rise of a new cycle or tail of the recession?," EIF Working Paper Series 2010/03, European Investment Fund (EIF).
    6. Solís Baltodano, María José, 2016. "The Catalan health budget rationing problem," Working Papers 2072/290741, Universitat Rovira i Virgili, Department of Economics.
    7. Orlowski, Lucjan T., 2015. "From pit to electronic trading: Impact on price volatility of U.S. Treasury futures," Review of Financial Economics, Elsevier, vol. 25(C), pages 3-9.
    8. Talani, Leila Simona, 2014. "The Political Economy of Italy in the EMU: What Went Wrong?," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, vol. 1(2), pages 133-149.
    9. Gabrisch, Hubert & Orlowski, Lucjan T., 2010. "The Extreme Risk Problem for Monetary Policies of the Euro-Candidates," IWH Discussion Papers 12/2010, Halle Institute for Economic Research (IWH).
    10. Katleho Daniel Makatjane & Edward Kagiso Molefe & Roscoe Bertrum van Wyk, 2018. "The Analysis of the 2008 US Financial Crisis: An Intervention Approach," Journal of Economics and Behavioral Studies, AMH International, vol. 10(1), pages 59-68.
    11. Meri Boshkoska & Spiro Lazaroski, 2018. "Leading Factors Of The Global Financial Crisis – The Us Evidence," Annals - Economy Series, Constantin Brancusi University, Faculty of Economics, vol. 5, pages 4-13, October.
    12. Leila Simona TALANI, 2014. "The Political Economy of Italy in the EMU: What Went Wrong?," Journal of Economics and Political Economy, KSP Journals, vol. 1(2), pages 133-149, December.
    13. Toralf Pusch, 2017. "The role of uncertainty in the euro crisis – an application of liquidity preference theory," International Review of Applied Economics, Taylor & Francis Journals, vol. 31(4), pages 527-548, July.
    14. Choy, Swee Yew & Chit, Myint Moe & Teo, Wing Leong, 2021. "Sovereign credit ratings: Discovering unorthodox factors and variables," Global Finance Journal, Elsevier, vol. 48(C).
    15. Orlowski, Lucjan T., 2015. "Monetary expansion and bank credit: A lack of spark," Journal of Policy Modeling, Elsevier, vol. 37(3), pages 510-520.
    16. Gabrisch, Hubert & Orlowski, Lucjan T. & Pusch, Toralf, 2012. "Sovereign default Risk in the Euro-Periphery and the Euro-Candidate Countries," MPRA Paper 41265, University Library of Munich, Germany.
    17. Pusch, Toralf, 2012. "The role of uncertainty in the euro crisis: A reconsideration of liquidity preference theory," ZÖSS-Discussion Papers 31, University of Hamburg, Centre for Economic and Sociological Studies (CESS/ZÖSS).
    18. Titelman Kardonsky, Daniel & Pérez Caldentey, Esteban & Pineda Salazar, Ramón, 2009. "The bigness of smallness: the financial crisis, its contagion mechanisms and its effects in Latin America," Revista CEPAL, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL), December.
    19. Hubert Gabrisch & Lucjan T. Orlowski, 2010. "Interest Rate Convergence in Euro-Candidate Countries: Volatility Dynamics of Sovereign Bond Yields," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 46(6), pages 69-85, November.
    20. Elisabeth Paulet, 2009. "The Subprime Crisis and the European Banking Sector: the Renewal of Universal Banks?," The AMFITEATRU ECONOMIC journal, Academy of Economic Studies - Bucharest, Romania, vol. 11(Number Sp), pages 684-697, November.
    21. Hubert Gabrisch & Lucjan T Orlowski, 2011. "Extreme Risks in Financial Markets and Monetary Policies of the Euro-Candidates," Comparative Economic Studies, Palgrave Macmillan;Association for Comparative Economic Studies, vol. 53(4), pages 511-534, December.
    22. Richard T. Harrison & Rob Baldock, 2015. "Financing SME growth in the UK: meeting the challenges after the global financial crisis," Venture Capital, Taylor & Francis Journals, vol. 17(1-2), pages 1-6, April.

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    More about this item

    Keywords

    subprime mortgage crisis; credit crisis; liquidity crisis; market risk; credit risk; default risk; Level 3 assets; Basel II;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage

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