Global Imbalances and Financial Fragility

摘要

We have presented a model to show how global imbalances has driven the US securiti-zation boom and bust. Since flows into the US have been predominantly seeking safe debt, US financial institutions, in producing the safe debt, have been left holding a levered claim on local mortgage risks. Thus our analysis ties together the behavior of leverage and the demand for US assets. An important aspect of the story that our analysis only touches upon is that in creating safe assets, the US financial sector not only took on more leverage, but also sourced assets (i.e., subprime loans) that carried higher cash flow risks.