Leveraged: The New Economics of Debt and Financial Fragility

An authoritative guide to the new economics of our crisis-filled century.  The 2008 financial crisis was a seismic event that laid bare how financial institutions’ instabilities can have devastating effects on societies and economies. COVID-19 brought similar financial devastation at the beginning of 2020 and once more massive interventions by central banks were needed to heed off the collapse of the financial system. All of which begs the question: why is our financial system so fragile and vulnerable that it needs government support so often?  For a generation of economists who have risen to prominence since 2008, these events have defined not only how they view financial instability, but financial markets more broadly. Leveraged brings together these voices to take stock of what we have learned about the costs and causes of financial fragility and to offer a new canonical framework for understanding it. Their message: the origins of financial instability in modern economies run deeper than the technical debates around banking regulation, countercyclical capital buffers, or living wills for financial institutions. Leveraged offers a fundamentally new picture of how financial institutions and societies coexist, for better or worse.   The essays here mark a new starting point for research in financial economics. As we muddle through the effects of a second financial crisis in this young century, Leveraged provides a road map and a research agenda for the future.

Table of Contents:
Introduction: The New Economics of Debt and Financial Fragility Moritz Schularick Part 1 Finance Unbound: The Rise of Finance and the Economy 1 How to Think about Finance    Atif Mian    Comment by Karen Dynan 2 Reconsidering the Costs and Benefits of Debt Booms for the Economy    Emil Verner    Comment by Holger Mueller Part 2 Risk-Taking: Incentives, Investors, Institutions 3 Are Bank CEOs to Blame?    Rüdiger Fahlenbrach    Comment by Samuel G. Hanson 4 A New Narrative of Investors, Subprime Lending, and the 2008 Crisis    Stefania Albanesi    Comment by Fernando Ferreira 5 Bank Capital before and after Financial Crises    Òscar Jordà, Björn Richter, Moritz Schularick, and Alan M. Taylor    Comment by Anna Kovner Part 3 Mispricing Risks: Credit Booms and Risk Premia 6 Beliefs and Risk-Taking    Alessia De Stefani and Kaspar Zimmermann    Comment by Yueran Ma 7 A New Approach to Measuring Banks’ Risk Exposure    Juliane Begenau    Comment by Nina Boyarchenko 8 Is Risk Mispriced in Credit Booms?    Tyler Muir Part 4 Financial Crises: Reconsidering the Origins and Consequences 9 Historical Banking Crises: A New Database and a Reassessment of Their Incidence and Severity    Matthew Baron and Daniel Dieckelmann    Comment by Mark Carlson 10 Was the U.S. Great Depression a Credit Boom Gone Wrong?    Natacha Postel-Vinay    Comment by Eugene N. White 11 Sectoral Credit Booms and Financial Stability    Karsten Müller    Comment by Orsola Costantini Index

About the Author :
Moritz Schularick is professor of economics at Sciences Po in Paris and at the University of Bonn, Germany. He is a fellow of the Institute for New Economic Thinking and has held appointments at New York University and the Federal Reserve Bank of New York. 

Review :
"[Leveraged] is well worth reading." "[Leveraged] explore[s] the causes and costs of financial instability, explaining why this fragility is endemic to modern economies." "Leveraged takes a thoughtful, data-based approach to the question of enduring concern which recent events have made particularly relevant. It is accessible, but serious, and deserves the attention of those whose job it is to watch the economy and those whose job it is to set policy." “Leveraged brings together the leading scholars working on the stunning rise in debt over the last forty years. The chapters offer compelling insight into the challenges to the world economy from a growing dependence on debt financing, and they also provide guidelines on what we are to do about it. The growth in debt requires that we revisit fundamental questions about the role of the financial sector, and this book makes great progress on these questions.”