Debt, Deregulation and Financial Crises
Chapter 7: Weaving the web of interconnectedness
Interconnectedness grew out of reliance on borrowing from and lending to other financial institutions, the primary channel for funding in offshore markets that migrated to the US market in the 1990s and resulted in growth in the financial sector as a share of GDP. Expansion of the market for repurchase agreements (repos) facilitated pyramiding as borrowing backed by one financial asset to buy another pushed up leverage and increased indebtedness within the financial sector. The repo market was the center of the loss of confidence in 2008 as it forced unwinding of positions and led to a run on the financial sector by the financial sector.
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