Debreu. The introduction of CDS always leads to under-investment with respect to Arrow Debreu, and in some cases even …

-2009. We study the effect of leverage, tranching, securitization and CDS on asset prices in a general equilibrium model with … collateral. We show why tranching and leverage tend to raise asset prices and why CDS tend to lower them. This may seem puzzling …, since it implies that creating a derivative tranche in the securitization whose payoffs are identical to the CDS will raise …

2007-2009. We show why tranching and leverage first raised asset prices and why CDS lowered them afterwards. This may seem … puzzling, since it implies that creating a derivative tranche in the securitization whose payoffs are identical to the CDS will … raise the underlying asset price while the CDS outside the securitization lowers it. The resolution of the puzzle is that …

rates, bond risks, and liquidity explain the trends before 2008 and the unusual developments in the fall of 2008. Low …

, then the economy will fall into a liquidity trap today. …

The possibility of default limits available liquidity. If the potential default draws nearer, a liquidity crisis may … endogenous contracts, including endogenous margin requirements on loans. This in turn allows GE to explain liquidity and … liquidity crises in equilibrium. A formal definition of liquidity is presented. When new information raises the probability and …

run are generated. A "liquidity black hole" is the analogue of the run outcome in a bank run model. Short horizon traders … liquidity black hole comes into existence. Empirical implications include the sharp V-shaped pattern in prices around the time … of the liquidity black hole. …