The Watershed Year of 2004: Origins and Causes of the Crisis
The authors focus on causality in the narrow sense of place and time: the preconditions for the crisis were global, but it all started in the USA and traced back to 2004. They argue that structural features of the US, including the role of Fannie Mae and Freddie Mac and SEC regulatory changes, were instrumental in the sharp acceleration of leverage and mortgage-backed securities (MBS) origination. They ask why bank management was unable to contain excessive risk and use corporate governance indicators for key US banks, and examples from Europe, to explain the dangerous equity culture in play. They argue that corporate governance cannot substitute for sound rules concerning leverage and what banks do with respect to their business models—models that led to the ‘Lehman Moment’.
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