NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

The Flight from Maturity

Gary B. Gorton, Andrew Metrick, Lei Xie

NBER Working Paper No. 20027
Issued in April 2014
NBER Program(s):   AP   CF   EFG   ME

Why did the failure of Lehman Brothers make the financial crisis dramatically worse? The financial crisis was a process of a build-up of risk during the crisis prior to the Lehman failure. Market participants tried to preserve an option or exit by shortening maturities – the “flight from maturity”. With increasingly short maturities, lenders created the possibility of fast exit. The failure of Lehman Brothers was the tipping point of this build-up of systemic fragility. We produce a chronology of the crisis which formalizes the dynamics of the crisis. A crisis is a dynamic process in which “tail risk” is endogenous.

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Document Object Identifier (DOI): 10.3386/w20027

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