Abstract
For all its mathematical models, finance is not physics. In fact, it runs pretty much on faith (Carlin et al. 2009), and can give rise to highly emotional reactions. This was much in evidence during the latest financial crisis. Trust, another name for faith, was shattered among financial actors when Lehman Brothers collapsed, causing a widespread clampdown on lending and prompting investors to rush for the exit, trying to get rid of their securities as quickly as possible on the way out. In a recent report (Saint-Paul et al. 2010), we argue that this is a key factor behind the sudden collapse in economic activity after October 2008. Show more
Publication status
publishedJournal / series
VOX CEPR's Policy PortalPublisher
Centre for Economic Policy ResearchOrganisational unit
02525 - KOF Konjunkturforschungsstelle / KOF Swiss Economic Institute
Notes
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ETH Bibliography
yes
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