Handbook of Critical Issues in Finance
Show Less

Handbook of Critical Issues in Finance

Edited by Jan Toporowski and Jo Michell

This vital new Handbook is an authoritative volume presenting key issues in finance that have been widely discussed in the financial markets but have been neglected in textbooks and the usual compilations of conventional academic wisdom.
Buy Book in Print
Show Summary Details
You do not have access to this content

Chapter 13: Financial crises

Martin H Wolfson


The Great Financial Crisis of 2008 was widely regarded as the most serious financial crisis since the Great Depression. It seriously challenged not only the stability of the global economy, but also the ability of standard economic theory to explain it. The crisis centered on the speculative boom in housing prices in major urban areas in the United States, but the speculative fervor spread more broadly as well. As housing prices escalated, loans were extended and houses were purchased on the assumption that housing prices would only continue to escalate. The speculation in housing prices would have put homes out of the reach of many borrowers if not for the development of the subprime market. Lenders who ordinarily would not have lent to these subprime borrowers (whose credit quality was less than ‘prime’) rushed to extend mortgages at high interest rates and with innovative repayment requirements. For instance, ‘option adjustable rate mortgages (ARMs)’ reduced initial monthly payments with low teaser rates (that adjusted upwards later) and allowed borrowers to choose the amount of monthly payment they would make (but with a corresponding increase in the total amount eventually owed).

You are not authenticated to view the full text of this chapter or article.

Elgaronline requires a subscription or purchase to access the full text of books or journals. Please login through your library system or with your personal username and password on the homepage.

Non-subscribers can freely search the site, view abstracts/ extracts and download selected front matter and introductory chapters for personal use.

Your library may not have purchased all subject areas. If you are authenticated and think you should have access to this title, please contact your librarian.

Further information

or login to access all content.