Economic Disturbances and Equilibrium in an Integrated Global Economy

Chapter 32

The Financial Crisis: Inflection Point or Black Swan?

Abstract

This chapter, argues against the view that the financial crisis was a Black Swan event. It reaches this conclusion by drawing a parallel between the S&L crisis of the 1990s and the financial crisis of 2007. It argues that the creation of the Resolution Trust Corporation (RTC) during the S&L crisis allowed the real estate market to clear relatively quickly, thereby reducing the economy’s recovery time to the adverse real estate shock without significantly impacting its growth rate. The parallels also raise the possibility that had the Bush and Obama administration adopted a policy that created an RTC-like institution, the recovery may haven stronger and faster. Like the S&L ...