The amount of information produced about firms' productivities and about the quality of collateral backing their loans … information about collateral depreciates. A financial crisis happens when information about collateral is suddenly generated …

the cost of ex-post inefficiency when there are adverse aggregate shocks to the fundamental quality of collateral … shocks by engaging in collateral liquidations. Financial arbitrage by less leveraged financial intermediaries equilibrates … returns from acquiring collateral at fire-sale prices and returns from real-sector lending, inducing higher lending rates, a …

cornerstone of credit markets in most societies since antiquity. The ability to seize and sell collateral reduces the creditor …