The entire difference between a mild downturn and a devastating crisis is the occurrence of sharp fire sales of domestic assets and possibly foreign exchange and the ensuing collapse in the balance sheets of both the financial and nonfinancial sector. Why and how do such crises materialize? And...

The United States is currently engulfed in the most severe financial crisis since the GreatDepression. The crisis was triggered by thecrash in the real estate “bubble” and amplifiedby the extreme concentration of risk in a highlyleveraged financial sector.Conventional wisdom is that both the...