Money, Credit, and Crisis

Bibliographic Data

ID2811765
AuthorsMason Gaffney (University of California System, corresponding author)
Year2009
Volume68
Issue4
Pages983-1038
Publication date2009-10-01
Peer ReviewedYes
Open AccessYes
TypeARTICLE
VenueAmerican Journal of Economics and Sociology (JOURNAL)
Journal identifiersISSN: 0002-9246 • E-ISSN: 1536-7150
PublisherWiley (PUBLISHER • GB)
DOI10.1111/j.1536-7150.2009.00659.x
OpenAlexW1980019732
LanguageEN
Citations received6
References cited12

The financial crisis of 2008-2009 has antecedents in earlier crises, including the Great Depression. In order to understand how the current crisis arose, we must review the most fundamental principles of banking. Doing that, we find that the main service performed by banks is the creation of liquidity, a collective good that can be destroyed by the behavior of individual financial institutions. The key element in creating liquidity is the monetization of various types of collateral. When collateral takes the form of land or capital that turns over slowly, banks lose liquidity. That is why major banking crises have frequently been associated with real estate lending. The best way to restore health to the financial system is by restoring the principles of the "real bills" doctrine that requires loans to be self-liquidating

Business · Capital (architecture) · Collateral · Economics · Element (criminal law) · Financial crisis · Financial system · Liquidity crisis · Macroeconomics · Market liquidity · Monetization · Order (exchange) · Real estate · Banking stability, regulation, efficiency · Economic Theory and Policy · Finance · Global Financial Crisis and Policies

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