Financial Panic

Narayana Kocherlakota addressed three financial panic triggers:

"[…] First, the financial system meltdown of 2007-09 was caused by the unexpectedly large decline in U.S. residential land prices. Second, higher amounts of household and financial institution leverage leave the financial system more vulnerable to these shocks. Finally, the U.S. tax system encourages leverage by providing incentives for households to take one more mortgage debt and financial institutions to finance through debt."

See Re-thinking leverage subsidies