NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

The Subprime Panic

Gary B. Gorton

NBER Working Paper No. 14398
Issued in October 2008
NBER Program(s):   AP   CF   EFG   ME

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.

download in pdf format
   (381 K)

email paper

This paper is available as PDF (381 K) or via email.

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w14398

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

Users who downloaded this paper also downloaded these:
Reinhart and Rogoff w14587 Banking Crises: An Equal Opportunity Menace
Gorton and Metrick w15223 Securitized Banking and the Run on Repo
Brunnermeier w14612 Deciphering the Liquidity and Credit Crunch 2007-08
Gorton and Metrick w15273 Haircuts
Diamond and Rajan w14739 The Credit Crisis: Conjectures about Causes and Remedies
 
Publications
Activities
Meetings
NBER Videos
Data
People
About

Support
National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us