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Leverage? What Leverage? A Deep Dive into the U.S. Flow of Funds in Search of Clues to the Global Crisis
Author:
Mr. Tamim Bayoumi
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and
Mr. Ashok Vir Bhatianull

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Series:
IMF Working Papers
Volume/Issue:
Volume 2012: Issue 162
Language:
English
Publication Date:
01 Jun 2012
DOI:
https://doi.org/10.5089/9781475504712.001
ISBN:
9781475504712
ISSN:
1018-5941
Pages:
30
Keywords:
WP; security credit; private sector; leveraged securities dealer; bank deposit; credit funding
Legal-disclaimer:
IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
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This paper questions the view that leverage should have forewarned us of the global financial crisis of 2007-09, pointing to several gearing indicators that were neither useful portents of the onset of the crisis nor of its ferocity. Instead it shows, first, that the use of ill-suited collateral in the secured funding operations of U.S.-based investment banks was the fatal link between the collapse of structured finance and the global malfunction of funding markets that turbocharged the downdraft; and, second, that this insight (and others) can be decrypted from the Flow of Funds Accounts of the United States.
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Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund
Volume 2012: Issue 162