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The crisis of 2007-09 has been characterized by a sudden freeze in the market for short-term, secured borrowing. We present a model that can explain a sudden collapse in the amount that can be borrowed against finitely-lived assets with little credit risk. The borrowing in this model takes the...
Persistent link: https://www.econbiz.de/10012462978
drying up of liquidity. Financial firms raise short-term debt in order to finance asset purchases. When asset fundamentals … worsen, debt induces firms to risk-shift; this limits their funding liquidity and their ability to roll over debt. Firms may … de-lever by selling assets to better-capitalized firms. Thus the market liquidity of assets depends on the severity of …
Persistent link: https://www.econbiz.de/10012462815