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The Global Financial Crisis 3. What are the 4 commonalities with prior crises? New dimensions of...

The Global Financial Crisis

3. What are the 4 commonalities with prior crises? New dimensions of the Financial Crisis?

4. What is original sin? What does it lead to?

5. What are the Channels and Mechanisms of the Crisis?

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Answer #1

Commonalities with previous crisis

  • Asset prices rise which changed out to be unsustainable.
  • Credit booms which led to excessive debt burdens
  • Build up marginal loans and systematic risk
  • The failure of regulation and supervision to keep up with and get ahead of the crisis when it erupted.

New dimension of the crisis-

  • The widespread use of complex and opaque financial instruments
  • The high degree of leverage of financial institution
  • The central role of the household sector
  • Increased interconnectedness among financial markets nationally and internationally with the U.S at the core.
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