TY  - JOUR
AU  - Gorton,Gary B.
TI  - The Subprime Panic
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 14398
PY  - 2008
Y2  - October 2008
UR  - http://www.nber.org/papers/w14398
L1  - http://www.nber.org/papers/w14398.pdf
N1  - Author contact info:
Gary B. Gorton
Yale School of Management
135 Prospect Street
P.O. Box 208200
New Haven, CT 06520-8200
Fax: 203/432-8931
E-Mail: Gary.Gorton@yale.edu
AB  - 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.
ER  -