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The contribution of wealth concentration to the subprime crisis: a quantitative estimation

Goda, T. and Lysandrou, P. (2014). The contribution of wealth concentration to the subprime crisis: a quantitative estimation. CAMBRIDGE JOURNAL OF ECONOMICS, 38(2), pp. 301-327. doi: 10.1093/cje/bet061

Abstract

The crisis that broke out in mid-2007 was caused by the fact that the CDO market hadgrown to a size sufficient to wreak general havoc when it suddenly collapsed. Several authors have arguedthat economic inequality was importantto the growth of this market. This paper attempts to strengthen this argument by concentrating attention on global wealth concentration. After summarising recent evidence on the negative impact of investor demand on US bond yields in the pre-crisis period, new evidence regarding the specific contribution of high net worth individuals to this negative impact is presented. The paper then goes on to show how, after having helped to causea yield problem in the major US debt markets, high net worth individuals (via hedge funds) continued to be a major source of the pressure on US banks to resolve this yield problem through the mass production of CDOs.

Publication Type: Article
Additional Information: This is a pre-copyedited, author-produced version of an article accepted for publication in Cambridge Journal of Economics following peer review. The version of record Goda, T. and Lysandrou, P. (2014). The contribution of wealth concentration to the subprime crisis: a quantitative estimation. CAMBRIDGE JOURNAL OF ECONOMICS, 38(2), pp. 301-327 is available online at: https://doi.org/10.1093/cje/bet061
Publisher Keywords: wealth concentration; income inequality; CDOs; subprime crisis; bond yields
Subjects: H Social Sciences > HC Economic History and Conditions
Departments: School of Arts & Social Sciences > International Politics
Date Deposited: 09 Oct 2020 13:14
URI: https://openaccess.city.ac.uk/id/eprint/24671
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