The Subprime Panic

No 14398, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Understanding the ongoing credit crisis or panic requires understanding the designs of a number of interlinked securities, special purpose vehicles, and derivatives, all related to subprime mortgages. I describe the relevant securities, derivatives, and vehicles to show: (1) how the chain of interlinked securities was sensitive to house prices; (2) how asymmetric information was created via complexity; (3) how the risk was spread in an opaque way; and (4) how trade in the ABX indices (linked to subprime bonds) allowed information to be aggregated and revealed. These details are at the heart of the origin of the Panic of 2007. The events of the panic are described.

JEL-codes: G1 G2 (search for similar items in EconPapers)
Date: 2008-10
New Economics Papers: this item is included in nep-rmg and nep-ure
Note: AP CF EFG ME
References: Add references at CitEc
Citations: View citations in EconPapers (68)

Published as Gary Gorton, 2009. "The Subprime Panic," European Financial Management, Blackwell Publishing Ltd, vol. 15(1), pages 10-46.

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Journal Article: The Subprime Panic* (2009)
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