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Leveraged

The New Economics of Debt and Financial Fragility

Leveraged

The New Economics of Debt and Financial Fragility

An authoritative guide to the new economics of our crisis-filled century. 

The 2008 financial crisis was a seismic event that laid bare how financial institutions’ instabilities can have devastating effects on societies and economies. COVID-19 brought similar financial devastation at the beginning of 2020 and once more massive interventions by central banks were needed to heed off the collapse of the financial system. All of which begs the question: why is our financial system so fragile and vulnerable that it needs government support so often? 

For a generation of economists who have risen to prominence since 2008, these events have defined not only how they view financial instability, but financial markets more broadly. Leveraged brings together these voices to take stock of what we have learned about the costs and causes of financial fragility and to offer a new canonical framework for understanding it. Their message: the origins of financial instability in modern economies run deeper than the technical debates around banking regulation, countercyclical capital buffers, or living wills for financial institutions. Leveraged offers a fundamentally new picture of how financial institutions and societies coexist, for better or worse.  

The essays here mark a new starting point for research in financial economics. As we muddle through the effects of a second financial crisis in this young century, Leveraged provides a road map and a research agenda for the future.

336 pages | 79 line drawings, 17 tables | 6 x 9 | © 2022

Economics and Business: Economics--Government Finance, Economics--International and Comparative, Economics--Money and Banking

Reviews

Leveraged brings together the leading scholars working on the stunning rise in debt over the last forty years. The chapters offer compelling insight into the challenges to the world economy from a growing dependence on debt financing, and they also provide guidelines on what we are to do about it. The growth in debt requires that we revisit fundamental questions about the role of the financial sector, and this book makes great progress on these questions.”

Amir Sufi, author of House of Debt: How They (and You) Caused the Great Recession, and How We Can Prevent It from Happening Again

Table of Contents

Introduction: The New Economics of Debt and Financial Fragility
Moritz Schularick
Part 1 Finance Unbound: The Rise of Finance and the Economy
1 How to Think about Finance
   Atif Mian
   Comment by Karen Dynan
2 Reconsidering the Costs and Benefits of Debt Booms for the Economy
   Emil Verner
   Comment by Holger Mueller
Part 2 Risk-Taking: Incentives, Investors, Institutions
3 Are Bank CEOs to Blame?
   Rüdiger Fahlenbrach
   Comment by Samuel G. Hanson
4 A New Narrative of Investors, Subprime Lending, and the 2008 Crisis
   Stefania Albanesi
   Comment by Fernando Ferreira
5 Bank Capital before and after Financial Crises
   Òscar Jordà, Björn Richter, Moritz Schularick, and Alan M. Taylor
   Comment by Anna Kovner
Part 3 Mispricing Risks: Credit Booms and Risk Premia
6 Beliefs and Risk-Taking
   Alessia De Stefani and Kaspar Zimmermann
   Comment by Yueran Ma
7 A New Approach to Measuring Banks’ Risk Exposure
   Juliane Begenau
   Comment by Nina Boyarchenko
8 Is Risk Mispriced in Credit Booms?
   Tyler Muir
Part 4 Financial Crises: Reconsidering the Origins and Consequences
9 Historical Banking Crises: A New Database and a Reassessment of Their Incidence and Severity
   Matthew Baron and Daniel Dieckelmann
   Comment by Mark Carlson
10 Was the U.S. Great Depression a Credit Boom Gone Wrong?
   Natacha Postel-Vinay
   Comment by Eugene N. White
11 Sectoral Credit Booms and Financial Stability
   Karsten Müller
   Comment by Orsola Costantini
Index

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