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Four myths and a financial crisis
Author(s) -
Vranceanu Radu
Publication year - 2011
Publication title -
thunderbird international business review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.553
H-Index - 37
eISSN - 1520-6874
pISSN - 1096-4762
DOI - 10.1002/tie.20398
Subject(s) - mythology , financial crisis , centennial , asset quality , shock (circulatory) , economics , asset (computer security) , quality (philosophy) , point (geometry) , finance , financial system , business , macroeconomics , market economy , history , medicine , philosophy , geometry , computer security , mathematics , epistemology , computer science , incentive , capital adequacy ratio , archaeology , classics
The main driving force of the financial crisis of 2007‐2009 was a rapid deterioration of the trust of private agents in the quality of financial institutions. In turn, this loss of confidence entailed a sharp decline in many asset prices and brought to their knees several large financial institutions with centennial traditions. This article surveys the critical moments of the crisis, presents some of the shock‐amplifying mechanisms, and comments on the effectiveness of various policy measures. We point out four conceptual myths that did not survive this crisis. The conclusion opens the debate on what structural changes in the existing financial architecture are required to contain such crises in the future. © 2011 Wiley Periodicals, Inc.